Your Paycheck: Employee vs Independent Contractor

An independent contractor will receive a check for the price set for a project, or for the hours worked at a specified rate. There are no deductions for taxes or benefits.
An employee’s paycheck is much different. There’s a “gross” amount – the hours worked times the rate of pay, or in some cases, a specified salary. Then there’s a list of deductions taken out of the wages for taxes, and benefits, leaving a “net” amount which is the amount of money the employee takes home.

There are so many payment systems today, it’s difficult to talk about a standard. The three most popular ways are:

• Paycheck – you still get a physical check you take to your financial institution and exchange it for cash
  • Advantages – complete control once you receive paycheck. Do not have to divulge any banking information.
  • Disadvantages – can be lost or stolen – need to contact your employer for a replacement. May not be able to cash on holidays and weekends when banks are closed.
• Direct Deposit – your “net pay” is deposited directly to an account you choose
  • Advantages – can normally chose up to three accounts to which to deposit money (checking, savings, investment account)
    • No worries about lost or stolen checks
    • Timely payment, no worries about when money is deposited, even when employee is on vacation
  • Disadvantages – can’t think of any
• Pay Card – your “net pay” is deposited directly to an employer issued debit card, which you can use as a debit card to withdraw cash from an ATM, grocery shop, or shop online.
  • The advantage of a Pay Card is that you do not have to have a bank account or banking relationship to pay bills or shop in person or online. You can pay directly with your Pay Card.
  • The disadvantages include the possibility of monthly maintenance fees, out of network ATM fees, balance inquiry fees. Pay Cards can also be stolen and used.

The most common length of a pay period is bi-weekly – every two weeks. Approximately 43% of employees are paid every two weeks or 26 times a year. Approximately 33% are paid weekly, leaving the rest paid monthly or bi-monthly (that’s twice a month or 24 times a year).

An old concept, especially popular for farm workers, is becoming popular again — daily pay. It is now used primarily for high-turn over jobs like being a restaurant server, driving for Uber, valets, delivery drivers, pet sitters, online tutors, lawn maintenance workers, daily laborers in construction, etc. It is also being used in the medical field, with nurses and other health care workers being paid after they finish their shift.

Regardless of how you’re paid, you should also receive a paystub or “pay advice” or “pay statement” which lists

• An employee ID #. Most employers don’t use social security numbers, for security reasons
• Pay period
• Pay date
• Total hours paid
• Pay Rate
• Gross Pay (hours paid x pay rate)
• Deductions, including:
  • Tax withholdings – federal (income tax, Medicare and social security tax), state, city, and local taxes. There are nine states that do not have a state income tax – Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming
  • Medical insurance deductions
  • Life insurance deductions
  • Disability insurance premiums
  • Dental insurance
  • Wage garnishments
  • 401K deductions
• Net Pay (Gross Pay less the deductions) Otherwise known as your Take-Home Pay.
• How many hours of vacation or “paid time off” are left in an employee’s bank.

As payroll become more automated, many employees don’t provide paychecks, paystubs, or pay advices. Instead they give employees 24/7 access to an online portal where employees can log in securely and view al their current and historical payroll information.