Meet John the Contractor and Sarah the Employee

(and why “under the table” is not a business plan)

Let’s set the scene.

John is a roofer. He owns John’s Roofing Co., has insurance, gave you a quote, told you what day he’d show up, and when the job was done, he sent an invoice. You paid it. Boom — done. That’s how business-to-business relationships work.

Then there’s Sarah. She works at your office. You tell her what time to be there, what to do, how to do it, and when it’s due. You provide her with a desk, maybe a laptop, a company email, and access to Canva or Zoom. She fills out a timesheet, and you run payroll.

Now, let’s see how these two live in different tax universes:

John the Contractor

• Owns his own business — not your employee.
• Tells you when he’s available.
• Uses his own tools and pays for his own supplies.
• Carries his own insurance.
• Sends an invoice, not a timecard.
• Pays his own taxes. You just send a 1099 if you paid him $600 or more for the year.
• Can hire help or subcontract the work if he wants — because he’s the boss of himself.

Sarah the Employee

• Works directly for you.
• You tell her what to do, when to do it, and how you want it done.
• Uses your tools and equipment (or ones you reimburse).
• Is covered under your business insurance and workers’ comp.
• You handle her taxes, benefits, and payroll.
• She cannot send her cousin to cover her shift (well, she can, but HR won’t like it).

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Then there’s “Cash Carl” — The Under-the-Table Nightmare

Carl sounds great at first: “Just pay me cash, no paperwork, no problem.”

Big problem.

If Carl gets hurt on your job? Guess who’s paying those medical bills.

If the IRS asks where that money went? Guess who’s writing a check (and it’s not Carl).

If you run out of money and “forget” to pay Carl? He has no legal recourse because technically, you never hired him.

No insurance, no taxes, no records — just a future starring you in “The Audit Strikes Back.”

Bottom Line

If they run their own business, invoice you, and control how they work — they’re a contractor like John. If you control their schedule, tools, and work product — they’re an employee like Sarah. And if you’re tempted to pay “Cash Carl” under the table, just remember: cheap now, expensive later.

Other link:

Employee verse Contractor
Notice to employees