Employee vs. Contractor: How to Tell the Difference
Understand how worker classification works, why it matters for payroll and taxes, and what paperwork each type needs.
Published · 6 min read
Why classification matters
Employees typically have taxes withheld from their pay, and the employer pays its share of payroll taxes. Contractors usually handle their own taxes. Getting it wrong can lead to back taxes and penalties.
Common factors
Agencies generally look at how much control you have over the work.
- Behavioral control: do you direct how the work is done?
- Financial control: who provides tools and sets pay terms?
- Relationship: is the work ongoing and core to your business?
Paperwork differences
Employees usually complete a W-4 and I-9 and receive a W-2. Contractors usually complete a W-9 and may receive a 1099-NEC. Rules can differ by state, so confirm current guidance.
Paying both from one place
Some payroll platforms, including Gusto, offer ways to pay both employees and contractors. Check current plan details to confirm what is included.
See if Gusto fits your business
Compare plans, pricing, and eligibility directly with Gusto.
This article is general information, not tax or legal advice. GetBizFlow is an independent referral site and may receive a referral benefit if you sign up through our links.