One of the biggest challenges businesses face is determining if workers are employees or independent contractors. Businesses are frequently tempted to classify workers who are actually employees as independent contractors.
Can you just make a choice of putting a worker on payroll or paying as an independent contractor? Definitely not. There are strict guidelines in place for classifying workers. It is critical to classify correctly or face significant penalties from both federal and state authorities.
How does one go about getting it right? The determination is made by reviewing the degree of control that the business has over the worker and the job function. Some of the typical questions to ask are:
Does the company have the right to control how and when the worker does his job?
How is the worker paid – by the hour or by the job?
Who provides the tools and supplies for the job?
Is there a written contract between the parties spelling out rights and responsibilities of each?
Does the worker work exclusively for your business or perform services for other customers?
Some business functions lend themselves to being done by contractors while other functions simply do not. The facts and circumstances of each case will decide the proper treatment. It is important to get it right to avoid the prospect of an IRS audit tapping you for back payroll taxes, penalties, and interest.
If your facts and circumstances do not leave you with a clear indication as to whether or not you have an independent contractor, give us a call and we’ll review your worker classifications with you.