To determine whether a person is an employee or an independent contractor, one must look closely at how the person is controlled by the employer. The IRS provides some assistance in helping businesses determine the proper classification of a worker on their website, however the particular facts of the relationship is key to determining the person’s status. A written contract or the filing of the proper papers with the IRS may help define the relationship, however they will not be definitive to the actual relationship that exists.
A few questions an employer must ask itself is:
- Do I control or direct how the work is being done or just the end results?
- Do I control when and where the work must be performed or just that the work be completed?
- Do I control who the worker may use to complete the work being done or just the end results?
- Do I control where supplies and services will come from or just that I be given the end product?
- Do I require training about my procedures and methods or just the end results?
- Do I reimburse expenses and costs or just pay a set fee?
- Do I provide benefits such as insurance, pensions vacation pay or sick pay or just pay a set fee?
- Is the work performed a key aspect of my business or something that just helps my business to run?
- Is the work permanent or temporary?
If a person is classified as an employee, then proper taxes will have to be withheld, unemployment taxes paid and Form W-2s issued in addition to other potential requirements. If a person is classified as an independent contractor, then I may be required to only report the correct Form 1099 and allow the employee to pay his taxes himself. Failure to properly classify a worker may result in hefty fees and fines by the appropriate governing agencies.
It is advisable that the relationship of an employer’s workers be reviewed by experienced practitioners to ensure everything is in order and avoid legal problems later.
