Proper Distinction May Save Money
Author: Keith Huggett
Bringing independent workers or independent contractors aboard without classifying them as employees can save you a great deal of money. The savings come from your ability to just pay them for the work done without withholding taxes, paying into FICA or paying worker's compensation insurance.
Unfortunately, the potential to save money has led a number of employers to classify their workers incorrectly. This had led to a great deal of IRS scrutiny of employers who use independent workers. To help keep you out of trouble, here are three ways to find out if a worker is an employee or a contractor:
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Control: Who controls how the person does his or her job? For example, if you were to hire an off-site payroll provider, they would likely choose what software to use to do your payroll, whether to process it at 11 a.m. or 3 p.m., and what to wear while they were doing it. Although you controlled what ultimately got done, you would not control how they did it. This would make them independent workers.
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Money. Who pays the cost of doing the work? With employees, you would typically pay for all of the tools that they use to do their jobs and pay them for working for you. Contractors typically have their pay directly tied to a specific task, and could even lose money in their business if things go wrong.
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Relationship. What kind of relationship do you have with the worker? If you are giving them benefits or paid leave, the IRS would consider them an employee. Such things as set hours, set workplaces and dress codes can also cause a worker to be classified as an employee.
Ultimately, determining whether or not a worker is independent can be complicated. Letting The Tax Office, Inc. help you determine the nature of a worker can reduce your risk of being audited by multiple parties. We can even help you complete an SS-8 form to get an IRS determination of an employee's status. Given the amount of money that using independent workers can save you, this is very inexpensive insurance. Contact us here to get started today.
