We often get asked the question “Is this person working for me an employee or an independent contractor?” The classification can have many affects to the way they get paid and the cost of utilizing their services. For instance, if someone performing services for your company is an independent contractor, you do not have to pay certain taxes required for employees (Social Security tax and Medicare tax, to name a few). Other costs for employees, such as health insurance and workers compensation insurance, may not apply either.
There is no bright-line test that can definitively answer this question. The IRS reviews this on a case by case basis. Some of the determining factors are listed below:
Some of the indications that they may be an employee:
- You control or direct how the work is done through instruction or training
- You control when the work is done
- The persons schedule is set by you
- You supply the tools to accomplish the job
Some of the indications that they may be an independent contractor:
- You didn’t control the work done by the individual
- If they had other customers/clients
- If the work is done off premise
- The individual makes their services available to the general public
Misclassifying an employee as an independent contractor can have some significant financial issues attached to it, so it is important to know the rules and how they apply to your employees. For more information you can check out some details provided by the IRS here [1].
If you have any questions or would like to discuss this, contact us [2].