Business owners often find themselves pondering this question. As a rule, they'd prefer to hire a contractor and avoid the headache of dealing with paystubs, and payroll taxes. However, it's important to remember that this isn't just a matter of preference. There are clear distinctions set by both the IRS at the federal level and the Labor and Industries Department at the state level, which closely monitor cases of law violations. Violations can result in substantial fines.
Below you will find the links to those requirements. In brief, a contractor is always an independent specialist in a certain field, possessing a set of skills, knowledge, and experience. Contractors can offer services to multiple clients. They usually have all required business and professional licenses, their own business insurance, and tools. The employer's involvement in a contractor's work is usually minimal – they assign tasks and deadlines, then verify their completion. On the other hand, employees are under the control of the employer, who establishes their work schedule, assigns tasks, sets deadlines and methods of task completion, provides necessary equipment, and closely monitors the process. Also, note that having a contract with a contractor is not the decisive factor in determining their employment status.
Links:
IRS Common Law Employee (review all 3 categories carefully) - https://www.irs.gov/businesses/small-businesses-self-employed/employee-common-law-employee
Washington L&I Independent Contractors (review the 6-part test) - https://www.lni.wa.gov/insurance/insurance-requirements/independent-contractors/#workers-compensation
