When you’re onboarding a new team member, there’s always a fair amount of paperwork involved—tax forms, contracts, non-disclosure agreements, and more. However, the type of paperwork varies significantly depending on whether you're bringing on an employee or an independent contractor.
Correct classification is essential, as it influences tax obligations, control over work processes, and even the potential risks of misclassification. Here’s a breakdown of what you need to know about hiring employees versus independent contractors and the essential forms for each.
When you hire an employee, your business becomes their employer. This relationship gives you more control over how and when they work. Typically, with employees, you may dictate:
Independent contractors, by contrast, are self-employed individuals. They work independently and often have more flexibility over how they deliver results. While they must follow the terms set in your contract, they typically make decisions about:
Independent contractors are generally hired for roles outside of your business's core functions. For example, if you operate a daycare, your teachers would be employees, but your landscaper could be an independent contractor.
A contract sets the foundation for your working relationship, covering details like:
Independent contractors often provide their own contracts, but you may also need to create one if needed.
Request a W-9 form from independent contractors to obtain their Taxpayer Identification Number (TIN). This form certifies their status for tax purposes. Keep a copy for your records.
If you pay an independent contractor more than $600 in a year, you must issue a 1099-MISC form so they can file their taxes. This form includes your TIN, their TIN, and the total payment amount.
The I-9 is the form for verifying that your new employee is authorized to work in the United States. The employee completes part of the form, and as the employer, you must review their identifying documents for authenticity. (Read more about how to handle this if your employee can’t come show you their documentation in person.)
Form W-4 helps determine how much federal income tax should be withheld from the employee’s pay. In states with income tax, additional forms, like New York’s IT-2104, may be required.
Classifying workers incorrectly can lead to serious legal and financial consequences, including:
Ensure you have a thorough understanding of your obligations, or seek professional advice to avoid potential pitfalls.
Are you hiring and onboarding new employees? Our New York State Employee Onboarding Kit has everything you need to get started. Download your free copy today.
If you're hiring an employee, or think you might be soon, check out our comprehensive resource page, Employee Onboarding - A Complete Guide. This is a handy, tightly-packaged outline that presents all the critical hiring and onboarding elements in simple, chronological order.