Independent Contractor or Employee?
The distinction between an independent contractor and an employee is an important one to make for both employers and workers. Employees only pay their half of payroll taxes (which is typically withheld from their paycheck by the employer) while independent contractors must pay both (employer and employee shares). If an employee is incorrectly classified as an independent contractor, the business can be held liable for employment taxes for that worker as well as any late fees or penalties.
If the distinction is unclear, Form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) can be filed with the IRS, who will then review the facts and circumstances and officially determine the worker’s status. When determining whether a worker is an independent contractor or employee, one must consider three categories of relevant facts: Behavioral Control, Financial Control, and Relationship of the Parties.
- Behavioral Control - Indicates whether a business has the right to direct or control how the worker carries out their work. A worker is considered an employee when the business has the right to direct and control the worker.
- Financial Control – Indicates whether the business has the right to direct or control the financial and business aspects of the work done (e.g. consider the worker’s investment in the tools used in performing the work).
- Relationship of the Parties – Indicates the type of relationship between the parties (e.g. through a written contract or types of benefits provided).
Forms W-2 (for employees) and Forms 1099-MISC for independent contractors (amounts reported in box 7) must be filed by January 31, 2018. This due date applies to government filing copies and employee/recipient copies.
If you have specific questions about the status of a worker, please contact our office for additional information.Back To List