Independent Contractor (Self-Employed) or Employee?
It is critical that you, the business owner, correctly determine
whether the individuals providing services are employees or independent
contractors.
Generally, you must withhold income taxes, withhold and
pay Social Security and Medicare taxes, and pay unemployment tax on
wages paid to an employee. You do not generally have to withhold or pay
any taxes on payments to independent contractors.
If you are an
independent contractor and hire or subcontract work to others, you will
want to review the information below to determine whether
individuals you hire are independent contractors (subcontractors) or
employees.
Before you can determine how to treat payments you make for
services, you must first know the business relationship that exists
between you and the person performing the services.
The person
performing the services may be -
An independent contractor
In determining whether the person providing service is an employee
or an independent contractor, all information that provides evidence of
the degree of control and independence must be considered.
Common Law Rules
Facts that provide evidence of the degree of control and independence 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?
Businesses must weigh all these factors when determining whether a
worker is an employee or independent contractor. Some factors may
indicate that the worker is an employee, while other factors indicate
that the worker is an independent contractor. There is no "magic" or
set number of factors that "makes" the worker an employee or an
independent contractor, and no one factor stands alone in making this
determination. Also, factors which are relevant in one situation may
not be relevant in another.
The keys are to look at the entire relationship, consider the degree
or extent of the right to direct and control, and finally, to document
each of the factors used in coming up with the determination.
If you have any questions on how you should be taxing your staff or vendors PLEASE speak with your CPA to get more information (our Tax Goddess can be found here
if you have any questions)!
Looking our for your best interests,
Your Tax Goddess~
Shauna~
Comments