As a business consultant to small businesses, I’ve had to question whether an individual doing work for a company is a “contractor” or actually an “employee”.
The business owner hires someone and may set the person up as a contractor, when, in reality, the person is an employee.
Do you know the difference?
Are you aware of the penalties of mis-classifying your workers?
Let’s look at how the IRS classifies an employee vs. a contractor and you decide whether you’re in compliance.
- An independent contractor is self-employed
- The company does not control how the individual does their job or what the individual does
- The company does not provide the necessary tools or supplies for the individual to complete their work
- The company does not reimburse the individual for their expenses
- The company does not provide any benefits to the individual
- There is a contract between the contractor and the company
- The individual does not have an ongoing relationship with the company once the service is performed
As a business owner you must decide the working relationship between your company and an individual who works for your company. These are the guidelines to use, but there are many factors that can come into play.
To keep your business in compliance, document how the individual is working for your company and have a contract specifying the working relationship.
Your business will be penalized by the IRS for mis-classifying a worker. You would be obligated to pay the employment taxes for the wages paid to the worker if the IRS determined that the individual was in fact an employee.
Do you have questions about those who work for you?
Contact me today make sure you have your workers classified correctly.