In an organization, there are several staff and workers. All of these have different roles and statuses and, according to their roles, they get their salary and other allowances. The main difference between staff in a company is employees and independent contractors. The company hires independent contractors according to their needs. If a project is going to start and the company does not have enough employees at that time. Then they hire independent contractors for that particular work.
The employee of a company is someone who performs all the duties and functions according to the employer. The employer appoints him/her for an extended period. All the companies have a Human resource department that appoints employees according to the need of the company. This department fixes the salary of an employee with some benefits.
The fair labors standards act has stated several guidelines that an employer has to follow. Along with the salary, the employee of a company has several other benefits as well. These benefits were not available for the independent contractors.
The company has to pay various taxes to the state and federal authorities on behalf of the employees. These taxes include social security taxes and medical care. The income tax is also generally deducted from the salary of the employee. The company deducts all these amounts from the salary they gave to their employees. The amount the independent contractors get for their services is complete and, the company cannot deduct anything from it.
There is a difference in annual tax filing; the employee has to file a W-2 form, and the independent director has to file form 1099- NEC.
The independent contractors have to sign a contract with the company regarding the services and reimbursement that they get.
Why do Companies Prefer Independent Contractors?
In the United States, workers need to fall in the category where they work to get benefits. The United States labor law does not give many rights to independent contractors. Therefore, the companies try to label their workers as independent contractors so that they do not have access to these facilities. The companies save much money by doing this, and they do not have to pay for the benefits of independent contractors.
The company has to provide various facilities to the workers. These facilities include transportation, medical care, and logistics. They can save the money spent there by hiring more and more independent contractors and freelancers. Because of the increase of unemployment in the market, these people agree to work on very minimum pay. The independent contractors do their work on time, and they also do not need supervision so, the company saves more money by this.
The contract that the company signs with the independent contractors always benefits the company.
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