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Business Tip |
Don't treat employees as independent contractors.
Whether someone who is working for you is an employee or an independent contractor is usually a matter of facts and circumstances. It can be convenient and less expensive to have an independent contractor. They are responsible for their own payroll taxes, and you usually don't need to have them in your employee benefit programs, such as medical insurance, pension plan, vacation, and sick time.
Even if the other party wants to be treated as an independent contractor, the decision is not always up to the two of you. The IRS has a list of 20 factors they use to help determine who is an employee and who is not. The rules are very complex and somewhat subjective. In general, the IRS will look to see how much control you have over the worker.
Here are the 20 factors the IRS has published to assist you in determining the proper classification:
1. Do you have the authority to prescribe how the worker
performs the work?
2. Do you train the worker?
3. How essential are the services rendered to your business?
4. Is the worker required to do the work personally?
5. Is there
a continuing relationship after the end of the
current project?
6. Do you hire and pay for those who assist the worker?
7. Do you set the working hours?
8. Is the worker required to work on your premises?
9. Can you require the sequence in which the work is done?
10. Is the worker required to be at the task full time?
11. Does the worker provide his or her own tools?
12. Does the worker advertise for other customers?
13. Do you require the worker to give you oral or written
reports about the job?
14. Do you have the right to fire the worker before the
task
is completed?
15. What determines how the worker is being paid?
16. Do you reimburse the worker for business or travel expenses?
17. Does the worker bear the risk of losing money on the job?
18. Can the worker quit at any time without being liable
to
you for an unfinished job?
19. Does the worker have a significant investment in equipment?
20. Is the worker entitled to provide services to more
than
one company at a time?
These 20 guidelines, along with the facts and circumstances of the situation, help determine who can be treated as an independent contractor and who cannot. There is no clear weight assigned to any one factor and, therefore, it can be difficult for you to determine who should be treated as an employee.
Having the IRS and state agencies declare after-the-fact that you have an employee and not an independent contractor can be expensive. If you would like assistance in determining who can be treated as independent contractors, please contact us. We are here to help you.
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site every month for helpful suggestions on how to make your business more profitable.
The information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
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