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I got a remote work offer for a company based in UK , they asked me if i would be able to confirm if it would be acceptable for me to invoice them monthly for my services or whether i would need to be a salaried employee .

and in case i decided to get paid for invoice , they proposed an initial starting payment level per month.

So what is the difference between each option ?

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If the employer and the employee were both based in the U.S. then this question would be about the difference between being a W-2 employee vs. a 1099 independent contractor. The terms W-2 and 1099 refer to the IRS forms you use for tax purposes.

The distinction between being an employee vs. an independent contractor has implications regarding tax obligations owed to the federal government. Things like: who owes what income and payroll taxes, how much is owed and when are payments due are affected by this dinstinction. As well as other potential obligations (e.g., health care coverage) placed on the employer if the worker is an employee.

This is all very complicated due to the nature and complexity of U.S. employment law. Such that you will likely need the help of a CPA to figure it all out and comply if you are 1099. The company will have to figure out everything to comply if you are a W-2 employee.

If you want to research this further here is an article to get you started.

Two points worth mentioning:

  1. In the U.S., usually the employer determines whether the job is a W-2 or 1099 position. Typically, the employer will prefer a 1099 relationship because it places fewer burdens and obligations on the employer. But this is not necessarily always the case. In any event, the IRS publishes guidelines for employers to follow when making the determination. But employers have no way of guaranteeing in advance how the IRS will rule on any given case. Because the guidelines are not binding and are open to interpretation. There are a few noteworthy cases right now making their way through the system on this issue with companies like Uber and the fast food franchises.

  2. Your question doesn't clarify which of the two of you are subject to U.S. employment law. You say the employer is based in the U.K. but you don't say where you are located or whether or not the employer has any presence in your home country (e.g. satellite office or branch, etc.). This answer only applies to the U.S. If this is international it could get more complex. If so, see this question and answer for more details.

  • @SOIA: Thanks for your feedback. Based on your feedback, I removed the link and replaced it with a link to a simple checklist. I also added a link to the IRS web site too. – Mowzer Dec 18 '15 at 21:20
  • No problem. I just wanted you to be aware of the issue. I assumed you weren't. At a glance that looked like a great link. But when used, it proved otherwise. – Scott Dec 18 '15 at 21:31
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In the USA, he irs has rules for declaring you to be a de facto employee, regardless of how you arrange your compensation. High on the list is the question of whether your engagement is at the whim of the employer with respect to time, tools, and place. I.e. You call yourself a vendor, but you work when the employer wants you to, sitting in their office, using their computers. The irs will very likely decide that you are indeed an employee.

Pragmatically for you, it comes down to which party, you or the employer, will be paying the various social taxes.

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