Whats the Difference Between an Employee and an Independent Contractor?

In general, an independent contractor (IC) is someone who provides specialized services on a per-project basis for a number of businesses or clients. Services that an IC provides usually require a certain level of skill, experience, and sometimes licensing — for example, bookkeepers and attorneys are often ICs. You can hire an IC on an ongoing basis — for example, to maintain your eBay store — or on a periodic basis, to do your taxes each year. ICs also work by the job — for example, to remodel a home office or help an eBay business launch a product. In comparison, an employee follows the rules you set and meets the standards you require, often at your workplace. As an employer, you exercise a lot more control over an employee than over an IC, from setting work hours to dictating exactly how the employee does every aspect of the job. Although you may hire an employee on a short-term basis (such as helping you during the hot eBay selling seasons), employees are more commonly hired on an open-ended basis, such as until the work runs out, or he or she quits or is fired.

Sometimes it may be tough to tell how a worker should be classified, but it is usually straightforward: If you’re hiring someone who runs his or her own business and you are a customer of that business, you’re probably hiring an IC. If you’re hiring someone to work for your business, subject to your control and your standards, you’re probably hiring an employee.

For typical eBay tasks, you're likely to hire workers on the following basis:

  • Setting up your website or eBay store. You are probably better off hiring an IC for the task of setting up your site, a task that is fairly well-defined, complicated and short-term. You will need someone who has had a lot of experience accomplishing this one task, and that is more likely to be an IC who makes a living doing so. Also, because most ICs are paid by the project (unlike employees, who generally are paid for their time), ICs have a stronger incentive to finish the work quickly. The sooner you are up and running, the better!

  • Day-to-day eBay business. Employees are usually a better choice to do work that is an integral and ongoing part of your eBay business, such as listing items, shipping orders, and dealing with customers. If hiring employees to do this work, you’ll have more control over their training and the quality of their output, and you will have someone helping you who understands your way of doing business and provides consistent service to customers, all essential factors in establishing your company's reputation. You are also likely to satisfy the IRS if it checks the classification of your helpers in an audit. If your workers are doing the tasks for which eBay businesses are known, the IRS is much more likely to classify them as employees, not ICs. Misclassifying workers can get you in big trouble, as described below.

  • Accounting and inventory. Accounting, inventory, and other types of data management of your eBay business may be handled by ICs or employees, depending on the size of your business and the frequency that these tasks are performed. For example, large eBay businesses may hire employees for part-time or full-time inventory management, while a startup company may hire an IC for a short time to manage an annual physical inventory or to set up its bookkeeping system.

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