How to Tell Contractors and Employees Apart and Why it Matters
Episode #246 with Jeremy Doorn
Overview
You want to make videos. Yet, to be a video business, you need to manage a lot of other aspects, particularly taxes. I know you didn’t get into this work because of the taxes. So why are you pulling out your hair over it? Today’s guest on this special Facebook Live recording explains how to make sense of it all.
Key Takeaways
Generally speaking, an employee is someone who works for you long-term whereas contractors tend to be temporary. You have more control over how employees do their work than you do with contractors.
About Jeremy Doorn
As a ten-year-plus employee of Core Wealth Management, Jeremy Doorn helps small businesses do a better job of tax planning. In addition to firm administration, he handles business advisory services and business succession planning for his clients.
The Subtle and Not So Subtle Distinctions Between W-2s and 1099s
Jeremy explains why it’s crucial to classify people who work for you correctly. Understanding the difference between a contractor and an employee is essential. If you get caught misclassifying them, it will come back to bite you.
While there are subtle differences, generally speaking, an employee is someone who works for you on a permanent basis doing a variety of tasks. A contractor is someone who is hired on to do a specific, often temporary, job. Jeremy describes what to consider when classifying these people so that you don’t end up paying hefty penalties that could threaten your business.
Just Do the Right Thing
Jeremy stresses that it’s always best to just do the right thing. Don’t misclassify the people who work for you just to save some money. Not only is this dishonest, but it could land you in a whole heap of trouble.
When things look fishy to the IRS, an audit will likely follow. Although the risk on an audit is generally low, the risk just isn’t worth it. Jeremy repeatedly emphasizes that trying to save a little money now, could end up being very expensive in the end.
In This Episode
- Why it will save you money to pay for a tax expert [4:00]
- The most important differences between 1099 contractors and W-2 employees [9:15]
- How and why to transition from a contractor to an employee [17:20]
- Why people and businesses get audited [25:20]
- Calculating payroll costs for productions that can be billed to clients [33:20]
Quotes
“It’s really about getting close with your taxes. I don’t want you to be super overpaid or super underpaid because both are costing you money.” [6:55]
“If the person who you’re hiring is controlling what they do, how they’re doing it, the level of their work, they’re probably a contractor. If you’re controlling it - their hours, where, how, when they work, giving them tools to work with - then they’re probably employees.” [12:42]
“There’s not a whole lot of risk, but if you do get caught, you’re going to get penalized and it’s going to hurt.” [28:19]
Links
Join the Grow Your Video Business Facebook Group
Follow Core on Facebook | Twitter | Instagram
Follow Studio Sherpas on Facebook | Twitter | Instagram
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Episode 203: The Importance of Proper Bookkeeping to Save Your Business
Episode 236: How to Become an Authority within Your Niche
Episode 245: The Importance of Knowing Your Numbers to Protect Your Business