Independent Contractor or Employee?

This is a huge issue that causes much confusion. Independent contractors are NOT substitutes for employees, but a separate category altogether, and employees cannot be classified as independent contractors merely if they agree to it. That is not enough to satisfy the IRS, and if they should come checking, they will assess back payroll taxes if the independent contractor status has been used to avoid taxes.

The common law rules that determine if someone is an independent contractor or an employee now fall into three categories:

Behavioral: Does the company 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? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

(From the IRS: see this)

The IRS site states specifically that no one factor stands alone in making this determination, but that all factors must be considered. Consider all the factors, and document each of the factors. If you're still unsure, give us a call, and we can help you answer the questions to make the determination.