An agreement designating an individual as an employee, rather than an independent contractor, for tax purposes is a common arrangement. Under this structure, the company hiring the individual withholds federal and state income taxes, as well as Social Security and Medicare taxes, from the individual’s paycheck. The employer also pays its portion of Social Security and Medicare taxes. As an employee, the individual receives a Form W-2 annually, detailing the wages earned and taxes withheld during the year.
This employment classification offers several advantages, including eligibility for company-sponsored benefits such as health insurance, paid time off, and retirement plans. Furthermore, individuals in this type of arrangement are typically covered by unemployment insurance and workers’ compensation. Historically, this has been the standard model for employment, providing stability and access to crucial benefits that independent contractors often lack. This structure ensures compliance with labor laws and provides a clear framework for the employer-employee relationship.
