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Introduction: Understanding the Differences between W2 Employee and Contractor

When it comes to hiring workers, churches and para-church organizations have two main options: hiring W2 employees or contractors. While both types of workers can perform similar tasks, there are significant differences between the two. Understanding these differences is crucial for organizations to make informed decisions about their workforce and for workers to understand their rights and responsibilities.

Key Differences between W2 Employee and Contractor: Taxation, Benefits, and Control

Taxation: One of the most significant differences between W2 employees and contractors is how they are taxed. W2 employees have taxes withheld from their paychecks by their employer, including federal and state income taxes, Social Security, and Medicare taxes. Employers are also responsible for paying a portion of these taxes. Contractors, on the other hand, are responsible for paying their own taxes, including self-employment taxes, which cover Social Security and Medicare. Contractors are also responsible for making estimated tax payments throughout the year.

Benefits: Another key difference between W2 employees and contractors is benefits. W2 employees are typically eligible for benefits such as health insurance, retirement plans, and paid time off. Employers are required to offer certain benefits to full-time employees under the Affordable Care Act and other laws. Contractors, however, are not eligible for benefits through their clients or employers. They must purchase their own health insurance and save for retirement on their own.

Control: The level of control that a church has over a worker is another important difference between W2 employees and contractors. W2 employees are typically under the direct control of their employer, who sets their schedule, provides training, and supervises their work. Contractors, on the other hand, have more autonomy and control over their work. They are responsible for setting their own schedule, providing their own tools and equipment, and determining how they will complete the work.

Misclassification: One issue that can arise when hiring contractors is misclassification. Some churches may try to classify workers as contractors to avoid paying taxes and benefits. However, misclassifying workers can result in legal and financial consequences for the church. The IRS and state labor departments have specific criteria for determining whether a worker is a contractor or an employee, including the level of control the business has over the worker and the nature of the work being performed.

Churches often misclassify musicians, nursery workers, and custodial staff as contractors when they are actually W2 employees. Be careful to ensure your church is not doing so. It is possible they may be contractors under certain conditions. Do your research.

Conclusion

Understanding the differences between W2 employees and contractors is essential for the church and workers alike. While both types of workers can perform similar tasks, they are taxed differently, have different benefits, and are subject to different levels of control. Churches must ensure that they are properly classifying their workers to avoid legal and financial consequences. Workers must also understand their rights and responsibilities to ensure that they are being treated fairly and receiving the benefits they are entitled to.