Jul 2, 2019
There's a comprehensive IRS manual for guiding employers on the classification of employees versus independent contractors. If you don't know this regulatory mountain of legal classifications, rules, and tax liabilities for employees vs. independent contractors, it can be a whole mess of trouble for you and your company. In this episode, Cadie and Karen explain the ins and outs, confusion, myths, laws, regulations, and filing the proper paperwork of this incredibly common business issue.
1. What's the difference between an employee and an independent contractor?
2. How does the IRS classify between an employee and an independent contractor?
3. What are some Department of Labor employment red flags that could trigger an audit?
4. What is the IRS 20 Factor Test?
5. How can a payroll specialist or CPA help a company with the employee vs. independent contractor issue?
6. What is the owner's benefit of an employee over an independent contractor?
Cadie's Quick Employee vs. Independent Contractor
1. Does the worker use your equipment?
2. Are workers required to work a consistent and specific schedule?
3. Could the worker work enough hours be considered full-time?
4. Are you guiding workers on the job?
5. Is there extensive training involved?
While this checklist is a good start for an employer, there is more to this issue than time sheets, training, and schedules. The determining factor is the level of control that the employer has over the function of the worker, not the project. Bottom line: if you think that a contract worker might be an employee, then assume that they are employees. The fees, penalties, and the headaches with the Department of Labor are not worth the mistake.
Contact Cadie at Payroll Vault for more details.
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Quotables and Tweetables
There is no probationary contract worker period. A contract worker could work for you for one day, and if they're working as an employee, they need to be classified and an employee. - Cadie Gaut
So it doesn't come back on you as an employer when classifying people as independent contractors. You want to have a written contract in place explaining their classification and include the reasons. - Cadie Gaut
Businesses doing business with companies help with 1099's. Having a federal EIN other than a social security number on your invoices and 1099's is a plus. - Cadie Gaut
The IRS will assist you with classifying someone if you're unsure. It's IRS form SS8. - Cadie Gaut
Payroll Vault can pay your contractors just like we do your employees. We pay with direct deposits and pay cards. You're not having to write so many checks or keep up with how much you're paying the subcontractors throughout the year. It's automatic. - Cadie Gaut