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Business Tip – Employee vs Independent Contractor

No one likes paying taxes.

For a small business owner the matching payroll taxes, can add up to quit a bit of money, and make it tempting to classify everyone as an independent contractor in order to avoid paying those taxes. This could land you in a lot of trouble with the IRS, and ultimately cost you a lot more money. If you hire an individual to perform services for your business, making certain you classify them accurately is very important.
As a general rule of thumb, if the company controls what the worker does, how the worker does the job, where the worker does the job, how the worker is paid, and you provide their supplies/tools, they are most likely an employee and are subject to MCR, SS and Fed tax withholding and the company is responsible for the matching taxes and FUTA, SUTA.
Typically an Independent Contractor is hired for a specific project, a specific time period, and a set price. The individual is free to sub-contract out the work, and has the risk for loss. How the job is completed and the hours worked are solely up to the contractor.
The IRS website provides excellent information to assist in determining employee vs contractor status. You can find this information at: www.irs.gov

 

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