24 Jun Employee Or Independent Contractor? Be Informed
The IRS stimulates all companies and entrepreneurs to understand the rules when it comes to categorizing a worker as a staff member or an independent contractor.
An employer must deduct income taxes and pay Social Security, Medicare taxes and also unemployment tax on wages paid to an employee. If a company hires an independent contract, it typically does not have to withhold or pay any taxes.
Here are 2 key points for small companies to remember when it comes to classifying their workers:
It is very important to maintain professional engagement and interaction between an employee and employer or any other person working for a company. If the business owner controls exactly work has been done and directs how it should be done, it raises behavioral control. If the employer directs or controls economic and also certain relevant elements of a worker’s job, it exerts financial control. This includes:
- The amount of the worker’s investment in the facilities or tools used in providing services
- The degree to which the worker makes his/her services available to the appropriate market
- Just how a company pays the worker, and
- The degree to which the worker can realize a profit or sustain a loss
The partnership between a company and a worker is significant. Exactly how the employer and worker conceive their partnership is also essential for identifying worker status. Crucial topics to think about include:
- Written agreements describing the partnership the parties want to develop
- Whether the business offers the worker employee-type advantages, such as insurance, vacation or sick pay, pension plan
- The length and stability of the partnership, as well as
- The level to which services performed by the employee are a crucial factor of the regular business of the company
- The level to which the employee has uncompensated expenses
You can turn to the IRS for help with determining the status of your workers and use Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. IRS Publication 15-A, Employer’s Supplemental Tax Guide, is also an excellent resource.
Do you have any more questions and tired of dealing with endless accounting paper work? Contact us today!