Independent Contractor or Employee?
It is important for business owners to determine whether the individuals performing services for them are employees or independent contractors. The IRS recently has been cracking down on what they consider to be improper classifications, and can hold a business owner liable for employment taxes and penalties on payments to independent contractors who the IRS determines should be employees. Business owners need to look at the entire relationship with the individual performing services, consider the degree or extent of the right to direct and control, and document the factors used in coming up with the determination. The following three categories of facts that provide evidence of the degree of control and independence should be considered when making the determination:
- Behavioral- does the business control or have the right to control what the worker does and how the worker does the job?
- Financial- are the business aspects of the worker’s job controlled by the business owner? These include items like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.
- Type of Relationship- are there written contracts or employee type benefits (vacation pay, insurance, retirement plan, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Business owners must weigh all these factors and evaluate each situation separately as factors that are relevant in one situation may not be relevant in other situations. Please contact us if you need assistance with making this assessment.