As the cost of doing business rises we are steadily moving more of our business to independent contractors. The major benefit is to save on payroll taxes and cost of benefits. The combination of the two can increase the cost of each employee to 20%. a What many of you don’t know or need to be reminded of is that the IRS certain specifications that governs whether someone is an independent contractor or an employee. You must know what they are so that you can avoid penalties for being ignorant of the rules. a Vanilla Accounting points out these three major specifications to consider:
1) Behavior Control. Who decides when, where and how the work is performed? Who decides what tools/equipment to use? If additional staff is needed to help with the job, who hires them? If the worker has control over these decisions, then he/she may be considered an independent contractor. (Example: a case involving carpet installers found that they were independent contractors because they, not the flooring services company, determined the manner and sequence in which jobs were completed. They also used their own tools and hired their own “helper” work force.)
2) Financial Control. Who pays the operating expenses for the work to be performed (i.e. supplies, computer, travel expenses)? Is the worker free to perform services for other companies and/or the public? If the worker controls these decisions, then he/she may be considered an independent contractor. (Example: the carpet installers mentioned above were considered independent contractors because they purchased their own supplies, held the risk of profit or loss on their jobs, and were free to work without penalty for other companies.)
3) Relationship Factor. Who determines the working relationship of the parties? Is the worker provided with employee-type benefits such as insurance, vacation pay or sick pay? Obviously, these types of benefits are only paid to employees, not contractors.
Keep yourself safe by adhering to these rules and remember them as you build your growth strategy.
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» Employee or Independent Contractor? from ManagersRealm
From the previous post you can see that hiring an independent contractor can be a little tricky. Here are a few steps to follow to persuade the IRS that the worker in question is indeed an independent contractor. ... [Read More]
Tracked on: February 7, 2006 3:06 PM | Permalink to Trackback