Page 48 - GS140601
P. 48
Education
Employee versus described in Publication 15-A and on the "Independent
Contractor or Employee?" page on the IRS website. The
independent contractor categories are:
1. Behavioral control refers to whether there is a
By Vicki M. Daughdrill right to direct or control how the worker does the
Small Business Resources LLC work. A worker is an employee when the business
has the right to direct and control the worker.
n previous articles, I discussed the hiring process The business does not have to actually direct or
itself. When deciding whether to hire an employee, control the way the work is done – as long as the
employer has the right to do so. Factors include
it is essential to always consider whether you
I require an employee or can outsource the job to type of instructions given, degree of instruction,
and evaluation systems and training. So if you hire
an independent contractor. Many small businesses rely
on contractors. There are significant benefits to using someone, provide the necessary tools including
telephones or computers, train the individual on
independent contractors, including savings in labor costs,
reduced liability, and flexibility in hiring and firing. how you want sales presentations to be done,
and track the person's hours, the individual is an
employee, not an independent contractor.
The IRS offers guidelines on whether workers can be
classified as independent contractors or employees. This
determination has significant tax consequences. An 2. Financial control refers to whether a business
has the right to control the economic aspects of
incorrect decision on the part of a business can result in
great expense, plus considerable penalties and interest. the worker's job. These factors include whether
the worker has a significant investment in the
business; incurs unreimbursed expenses; has the
Expenses include reimbursement for wages you should've opportunity for profit or loss; offers his or her
paid under the Fair Labor Standards Act, including
overtime and minimum wage payments; back taxes and services to the open market; and determines his or
her terms of payment. Thus, if you hire someone
penalties for federal and state income taxes; Social Security,
Medicare and unemployment contributions; payment of and he or she works exclusively for you and meets
the other financial criteria, the individual is an
misclassified injured employees workers' compensation
benefits; and provision of employee benefits, including employee, not an independent contractor.
health insurance and retirement account contributions.
3. Type of relationship refers to facts that show how
When you hire employees, you have an obligation to the worker and business perceive their relationship
withhold and pay federal income tax, Social Security and to each other. The factors determining the type of
relationship between two parties generally fall
Medicare taxes, and federal unemployment insurance
premiums in addition to any state or local taxes. You into the categories of written contracts, employee
benefits, relationship permanency and services
must also report wages to the proper reporting agencies
and issue statements to each employee. In order to attract provided as key activities of the business.
and retain outstanding employees, you may also need to Twenty questions
provide a competitive benefits package to all employees.
For independent contractors, generally no withholding is In addition, the IRS has provided 20 questions to help
required, and the independent contractor is liable for all of workers determine whether they are employees. The
the taxes described above. answers will reveal whether they can be classified as
independent contractors or as employees.
What distinguishes an independent contractor from
an employee? In general, an employee performs duties 1. Are you required to comply with instructions
defined and structured by others, is trained on methods about when, where and how the work is to be
for completing the work, and works for only one employer. done?
An independent contractor operates under a business
name, has his or her own employees, maintains a separate 2. Does your client provide you with training to
business checking account, advertises his or her business' enable you to perform a job in a particular method
services, invoices for work completed, has more than one or manner?
client, has his or her own tools, sets his or her own hours, 3. Are the services you provide integrated into
and keeps business records. your client's business operation?
Three primary categories 4. Must the services be rendered by you personally?
5. Do you have the capability to hire, supervise
The courts have established three main categories or pay assistants to help you in performing the
when determining whether someone is an independent
contractor or an employee. These categories are fully services under contract?
48
Employee versus described in Publication 15-A and on the "Independent
Contractor or Employee?" page on the IRS website. The
independent contractor categories are:
1. Behavioral control refers to whether there is a
By Vicki M. Daughdrill right to direct or control how the worker does the
Small Business Resources LLC work. A worker is an employee when the business
has the right to direct and control the worker.
n previous articles, I discussed the hiring process The business does not have to actually direct or
itself. When deciding whether to hire an employee, control the way the work is done – as long as the
employer has the right to do so. Factors include
it is essential to always consider whether you
I require an employee or can outsource the job to type of instructions given, degree of instruction,
and evaluation systems and training. So if you hire
an independent contractor. Many small businesses rely
on contractors. There are significant benefits to using someone, provide the necessary tools including
telephones or computers, train the individual on
independent contractors, including savings in labor costs,
reduced liability, and flexibility in hiring and firing. how you want sales presentations to be done,
and track the person's hours, the individual is an
employee, not an independent contractor.
The IRS offers guidelines on whether workers can be
classified as independent contractors or employees. This
determination has significant tax consequences. An 2. Financial control refers to whether a business
has the right to control the economic aspects of
incorrect decision on the part of a business can result in
great expense, plus considerable penalties and interest. the worker's job. These factors include whether
the worker has a significant investment in the
business; incurs unreimbursed expenses; has the
Expenses include reimbursement for wages you should've opportunity for profit or loss; offers his or her
paid under the Fair Labor Standards Act, including
overtime and minimum wage payments; back taxes and services to the open market; and determines his or
her terms of payment. Thus, if you hire someone
penalties for federal and state income taxes; Social Security,
Medicare and unemployment contributions; payment of and he or she works exclusively for you and meets
the other financial criteria, the individual is an
misclassified injured employees workers' compensation
benefits; and provision of employee benefits, including employee, not an independent contractor.
health insurance and retirement account contributions.
3. Type of relationship refers to facts that show how
When you hire employees, you have an obligation to the worker and business perceive their relationship
withhold and pay federal income tax, Social Security and to each other. The factors determining the type of
relationship between two parties generally fall
Medicare taxes, and federal unemployment insurance
premiums in addition to any state or local taxes. You into the categories of written contracts, employee
benefits, relationship permanency and services
must also report wages to the proper reporting agencies
and issue statements to each employee. In order to attract provided as key activities of the business.
and retain outstanding employees, you may also need to Twenty questions
provide a competitive benefits package to all employees.
For independent contractors, generally no withholding is In addition, the IRS has provided 20 questions to help
required, and the independent contractor is liable for all of workers determine whether they are employees. The
the taxes described above. answers will reveal whether they can be classified as
independent contractors or as employees.
What distinguishes an independent contractor from
an employee? In general, an employee performs duties 1. Are you required to comply with instructions
defined and structured by others, is trained on methods about when, where and how the work is to be
for completing the work, and works for only one employer. done?
An independent contractor operates under a business
name, has his or her own employees, maintains a separate 2. Does your client provide you with training to
business checking account, advertises his or her business' enable you to perform a job in a particular method
services, invoices for work completed, has more than one or manner?
client, has his or her own tools, sets his or her own hours, 3. Are the services you provide integrated into
and keeps business records. your client's business operation?
Three primary categories 4. Must the services be rendered by you personally?
5. Do you have the capability to hire, supervise
The courts have established three main categories or pay assistants to help you in performing the
when determining whether someone is an independent
contractor or an employee. These categories are fully services under contract?
48
