It is critical that business owners correctly determine whether the individuals providing services for them are employees or independent contractors. Have you reviewed the circumstances of the service providers used in your business?

The determination of worker’s classification as either an employee or independent contractor is important because each classification has its own set of regulatory and reporting requirements (e.g., businesses must pay employment taxes on employees, but not for independent contractors).

When determining whether a person providing services to your business is an employee or an independent contractor (i.e., the worker’s classification), all information that provides evidence of the degree of control and independence must be considered. The facts that need to be evaluated fall into one of the following categories:

• Behavioral – Does your business control or have the right to control what the worker does and how the worker does his or her job?
• Financial – Are the business aspects of the worker’s job controlled by the payer (e.g., how the worker is paid, are expenses reimbursed, who provides tools and supplies to perform services)?
• Type of Relationship – Are there written contracts of a finite period of time or will the relationship continue indefinitely?

Businesses must weigh all factors in these categories to determine a worker’s classification. Some factors may indicate an employee relationship whereas others may indicate an independent contractor relationship. A definitive number on one side or the other is not the sole means of making a determination because some factors may need to be weighed more heavily than others.

If after reviewing the evidence, it is still unclear whether the worker should be classified as an employee or independent contractor, you may file Form SS-8 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding and have the IRS make the determination based on the facts and circumstances listed on the form.

Classifying a worker as an employee instead of an independent contractor with no reasonable basis for doing so will make your business liable for all employment taxes of a worker. Don’t be liable for additional employee’s taxes; contact Flexible Accounting Services of the Triangle today and let us assist you in correctly determining and documenting your worker’s classification.