Employee or Independent Contractor?

If you are a business owner, it is important to classify those providing services correctly as either an employee or independent contractor.  While your tax filing requirements for independent contractors are less stringent than those of employees, if you improperly classify an employee as an independent contractor, you may be held liable for prior employment taxes for that worker – plus penalties and interest.
Therefore, it’s important to know what classifies a worker as an employee.  The IRS refers to the common-law rules in determining employees.  According to the IRS, “Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done.”  More specifically, this control is broken  own into three categories:
1. Behavioral – who has control over what is done and how it is done.
2. Financial – who provides the tools, how is the worker paid.
3. Type of Relationship – contract, benefits.
No single factor alone can determine this classification.  It is important to look at the relationship as a whole and the degree of control.
After examining the relationship, if you are still unclear as to the correct classification, you can file form SS-8 with the IRS for an official determination.  However, it may take up to six months to get this official status.
If you have any questions about your worker classifications, please give us a call.
/posted by Tammy Morgeson, CPA