Employee or Independent Contractor
A major payroll problem companies face comes from the practice of treating employees as independent contractors. This eliminates the need to pay payroll taxes and the employer's share of Social Security, Medicare, FICA and FUTA. An employee is supervised, given orders, adheres to the chain of command, and serves one master. An employee works "at will" indefinitely and is compensated with a fixed salary. An employee is loyal and tied to the business of his employ. He works on site. He does not work for any other employers. An independent contractor is autonomous, works on a project basis, often works from remote locations, and has multiple contracts with multiple companies. He severs multiple masters. He is compensated for getting results and works for the duration of his contract or from time-to-time on a case-by-case basis.
Avoiding Employee/Independent Contractor Problems
A written contract can help to clarify how people are supervised and paid, who pays expenses, and who bears a risk of loss. It is helpful to document the payment terms, whether salaried, commissioned, project-by-project, etc.