Differences between Employees and Contractors in a Business Setting

Your business may offer contracts to independent contractors — people who do work for your company but who don’t work for your company in the sense of being an employee. Independent contractors differ from employees in some key areas, listed in the following table. Many of these issues directly affect what forms you must fill out with respect to the worker.

Employer Responsibility	Employee	Independent Contractor
Contribute to Social Security	Yes	No
Contribute to Medicare taxes	Yes	No
Withhold applicable federal taxes	Yes	No
File Form 1099-MISC with IRS if you pay the person $600 or more	No	Yes
Carry Worker’s Compensation Insurance for the person	Yes	No
Contribute to unemployment insurance fund and/or tax	Yes	No
Grant employee job benefits such as paid vacation, sick leave, holidays, and stock options	Yes	No
Pay employee for overtime	Yes	Generally no
Right to control how the worker performs the specific task for which he or she is hired	Generally yes	Generally no
Right to direct or control how the business aspects of the worker’s activities are conducted	Generally yes	Generally no

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Source:http://www.dummies.com/how-to/content/differences-between-employees-and-contractors-in-a.html