Have you Hired an Independent Contractor or Employee?
Determining Whether the Individuals Providing Services are Employees or Independent Contractors
In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of control and independence must be considered.
Facts that provide evidence of the degree of control and independence fall into three categories:
- Behavioral ~ Do you control or have the right to control what the worker does and how the worker does his or her job? Does this worker have time for other clients and ability to market his company?
- Financial ~ Are the business aspects of the worker’s job controlled by the payer? (Including how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) Does the worker take risk of losing financially if the job is not completed on time or to the specifications of the client?
- Type of Relationship ~ Do you have a written contract? Are you billed for the service or does the employee complete a time card and get other employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)?
The key is to look at the entire relationship, consider the degree or extent of the right to control, and finally, to document each of the factors used in coming up with the determination. If after this you have determined the worker as an independent contractor – have them fill out a W-9 form which you can print off the IRS.gov website.
Consequences of Treating an Employee as an Independent Contractor
If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker, along with possible fines and penalties.