Quick & Easy Guidelines to Classifying Workers as Employees or Independent Contractors
Do you know the difference between an employee and an independent contractor?
As a business owner not knowing can be very expensive.
Here is a guide to help you, the business owner, avoid penalties when classifying workers as Independent contractors or employees.
Employees are expensive when you count the cost of payroll taxes and employee benefits.
You as a business owner are always looking for ways to decrease your business expenses.
Many times it is tempting to hire an individual to work in your company or do work for your business and treat that individual has an independent contractor.
However, if you are wrong, and the Internal Revenue Service classifies that independent contractor as an employee your business will be subject to substantial penalties.
Here are three factors that you can use as a guideline for determining whether or not an individual meets the Internal Revenue Service classification as an Independent Contractor
The courts over the years have considered many factors in determining whether a worker is an employee or an independent contractor.
Today the courts consider three primary factors.
These factors are:
3.Relationship of the Parties.
Factors used to determine Behavioral Control.
Do you have the right to?
Direct or control how the person does the work?
When and where the work is to be done?
Supply tools and equipment?
Provide supplies and services?
Control the work?
Generally, if you the business owner have the right to control what will be done how it will be done, even if you do not exercise the right,the worker will be considered an employee.
Factors to consider:
Individual offers their services to others and does so.
Individual has a significant financial investment in tools and equipment.
Individual Incurs out-of-pocket expenses for the job.
Individual is subject to suffering financial loss or profit based on how they conducttheir business.
The above are factors that point to classification as an independent contractor.
Relationship with the worker
Do you provide the worker with benefits such as insurance and pension?
Does the worker provide vital services essential to your business?
Relationship with the worker
If you the business owner provide benefits and/ or the worker provides critical services essential to your business.
The worker meets the classification as an employee.
As employer consider the above three critical factors in determining whether an individual meets the classification as an independent contractor. Be sure to document why you believe an individual satisfies the criteria as an independent contractor.
What’s a person to do if they apply the above tests and are still unsure of the proper classification?
The Internal Revenue Service does provide a way for you the employer to seek a determination by filing a form SS-8 with the Internal Revenue Services.
Based on the information presented the Internal Revenue Service will make a determination as to whether the worker meets the criteria of an Independent Contractor individual.
For additional guidance on applying the factors dealing with the difference between independent contractor and employee email Gary McKinsey,EA
Email : Gary @Gary McKinsey.com In the subject line write Independent Contractor