Tribal workers: what’s the difference between employee & contractor, and why it matters to your tribal business
How you classify your tribal workers – as employees or contractors – may not be a concern for you as a tribal business owner, particularly if yours is a tribal government-owned corporation. However, it IS a concern for your workers, because whether they’re Native American or not, they are subject to federal income tax, under Internal Revenue Code Section 1 and Section 61.
(Yes, there are some exemptions explicitly created by treaty or statute, but since we are neither attorneys nor tax advisers, we’re not addressing that issue. For further information, view this IRS explanation that addresses tax exempt status for tribal workers.)
When it comes time to pay taxes, how your workers are classified may mean a great deal to them. They may find themselves getting the short end of the stick if they’re improperly classified, in their pay, taxes owed and in benefits.
Most businesses have a combination of employees and independent contractors – those they may bring in on a temporary basis at peak traffic times and then let go, or those who consult sporadically, and so forth. These are typically classified as independent contractors who receive 1099 forms rather than W2s at year-end. Employees can also be hired and let go on a seasonal basis, depending on the type of business, but typically are kept on for the duration.
The infographic below, Why Employee vs. Independent Contractor Classification Matters, sums up the important differences between an independent contractor and an employee. This infographic, provided by Wunderland via Work Awesome, also provides advice both to the worker and the employer.