Understanding the term 'payroll employee' is crucial for freelancers. It defines the traditional employment model you are likely contrasting with your own independent work.
What is Payroll employee?
A payroll employee is a traditional worker hired directly by a company. They are on the company's official payroll as a W-2 employee in the US. This means the employer withholds taxes, provides benefits, and controls the work schedule and methods.
Why is this important?
For freelancers, this distinction is key. It clarifies your legal and tax status as an independent contractor. Knowing the difference helps you avoid misclassification, which can lead to tax issues and loss of your freelance autonomy.
How does it work?
A company hires someone as a payroll employee. The employer then manages all tax withholdings, pays for benefits like health insurance, and submits payroll taxes. The employee receives a regular salary or wage with deductions already taken out.
Pros and cons
For the worker, pros include stability, benefits, and less tax paperwork. Cons are less autonomy and fixed income. For freelancers, the main con is that accepting a payroll role typically means ending your independent contractor status for that client.
Conclusion
As a freelancer, you are not a payroll employee. You are a business-of-one serving clients. Understanding this term helps you maintain proper boundaries, ensure correct classification, and manage your business and taxes effectively.
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