We all get it. The economy is in the crapper. Jobs are hard to find and sometimes hard to keep. Don’t be stupid if you decide to take a job that wants to pay you as a “contract” employee. In many cases, this is a recipe for disaster. What’s the big deal… Employers like a contract situation because all they do is hand over a lump sum to an employee. No federal income taxes, social security taxes, unemployment taxes, etc. to be held back from a paycheck. This also means no employer share of the taxes being paid. But it also means that the employer loses a lot of control that they might not really ever do give up.
Although there are complex terms and matrices to determine an employee’s status, the basic theory is that a contract employee is hired to complete a specific job. The employer has little, if any, control over how the job gets completed… He’s just paying for the completed task. If he is directing the employee, as in: when to show up, how long to stay, how to do the job.. the employee is really not a contract employee. If I hire you to paint my house, I’m paying you to do just that. You pretty much do it how you want and I pay you the agreed amount. You are responsible for all the tax ickiness. But if I hire you to show up at 8:00am and leave at 4:00pm, to paint specific tasks as I assign them… then you really may not qualify as a contract employee.
Beware of being paid as a contract employee when you do not qualify. At some point, things may go south. You may get fired for some silly reason. You’ll want to collect unemployment benefits, right? There aren’t any unemployment insurance premiums paid on behalf of contract employees. Dang. But if you really were not a contract employee and you are entitled to benefits (and a refund of a bunch of taxes)… you can file a few forms with the IRS to get an employee status determination and then do a little re-filing of your taxes. Of course, this might wind up having your boss paying for the original taxes he sought to avoid… and penalties and interest.