Continuing on into our exploration of the various employee classifications, today we ask the question what, exactly, is a “payroll employee” or “W-2 employee”? This question may seem a little self-explanatory, but we want to make the distinction! Knowing the difference and being able to support your classification is essential in managing your employees. So why would you hire a payroll employee rather than a contractor? What kinds of jobs would a payroll employee be better suited for? What kind of documentation is required upon hiring or filing taxes as a payroll employee? Again, as we dive into the topic, it’s essential to remember that these differences are not all inclusive, and if you’re ever unsure it’s best to consult with the IRS guidelines on the matter. But in the meantime, let’s get granular on this subject!
2 Benefits of Hiring a Payroll Employee Over an Independent Contractor
The primary benefit of hiring a payroll employee over an independent contractor is your ability to direct and control what someone works on while he or she is working. You can train the individual to work the way you want him or her to work and set a schedule for when the work should be completed.
When you hire a payroll employee rather than an independent contractor, there are almost no restrictions regarding the duties you can assign the employee to perform. This allows for more flexibility, as employees can be promoted, moved to a different department, or trained in other areas without having to worry about sticking to the contract of set duties an independent contractor would have to adhere to.
What Jobs are Payroll Employees Best Suited For?
Contractors work on different contracts at different times, selecting jobs and the hours in which they work them as they please. Payroll employees are best suited for jobs that require a worker to be present during a specific set of hours (i.e. working from 9am-5pm) and are typical to most industries that require customer service. In other words, payroll employees should fill the most vital roles in delivering value to your customer.
Documentation Required to Hire and Pay an Employee
There are also paperwork distinctions that come with having payroll employees. When hiring, consider the fact that you will need the following information to add the employee to your payroll, file taxes, and otherwise keep for your business records.
- Employer Identification Number (EIN)
- State or Local Tax ID Number
- State Unemployment ID Number
- Employee Address and Social Security Number or FEIN
- I-9 (requires Social Security Card or Birth Certificate and State Identification Card)
- State Withholding Allowance Certificate
- Department of Labor Records
- Workers’ Compensation ID Number
- Publication 15 (Circular E) if you plan to manage your own payroll
Distinguishing between an employee and independent contractor can be tricky, especially when you offer your employees flexible or remote hours. Payroll employees typically play essential roles in your business, delivering value to your clients and customers on a regular basis, and participating in day to day operations. However, if you are finding the lines might be blurred in your unique situation, don’t make the costly mistake of misclassifying your workers. Reach out to us today if you have questions about the status of your employees.