Back to top

Blog Archive

Click here to go back

Independent Contractor vs. Employee

Posted by McDonald & Osborne Posted on Oct 09 2015

I AM AN INDEPENDENT CONTRACTOR OR IN BUSINESS FOR MYSELF

If you are a business owner or contractor who provides services to other businesses, then you are generally considered self-employed.

I HIRE OR CONTRACT WITH INDIVIDUALS TO PROVIDE SERVICES TO MY BUSINESS

If you are a business owner hiring or contracting with other individuals to provide services, you must determine whether the individuals providing services are employees or independent contractors.

Here are 7 things every business owner should know about hiring people as independent contractors versus hiring them as employees.

1. The IRS uses 3 characteristics to determine the relationship between businesses and workers:

BEHAVIOR CONTROL covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.


FINANCIAL CONTROL covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.

TYPE OF RELATIONSHIP factor relates to how the workers and the business owner perceive their relationship.

2. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.

3. If you can direct or control only the result of the work done-and not the means and methods of accomplishing the result-then your workers are probably independent contractors.

4. Employers who misclassify workers as independent contractors can end up with substantial tax bills.

5. Workers can avoid higher tax bills and lost benefits if they know their proper status.

6. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding , with the IRS.

7. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link.

Diana Hubbard
Accountant
DHubbard@mo-cpa.com

Photo Credit: Dreamstime.com