As a business owner, it`s important to understand the difference between hiring an independent contractor and an employee. The IRS has specific rules and regulations for each type of worker, and failing to adhere to these guidelines can result in costly penalties and legal issues. To ensure you are classifying your workers correctly, use this IRS contractor vs employee checklist.
1. Behavioral control
The first factor to consider when determining if a worker is an employee or independent contractor is the level of behavioral control you have over them. An employee is typically subject to more control, as they must follow company policies, work at specific times, and perform their duties according to company guidelines. An independent contractor, on the other hand, has more control over their work schedule and methods.
2. Financial control
Another factor to consider is financial control. An independent contractor typically has more control over their finances, such as setting their own rates and determining their own expenses. Employees, on the other hand, are typically paid a set wage and may be reimbursed for expenses.
3. Relationship type
The IRS also examines the type of relationship between the worker and employer. An employee typically has a more long-term relationship with the employer, while an independent contractor may only work on a project-by-project basis.
Employees are typically eligible for benefits such as health insurance, paid time off, and retirement plans. Independent contractors are not typically offered these benefits, as they are responsible for their own insurance and retirement savings.
An employer is responsible for withholding taxes for employees, while an independent contractor is responsible for paying their own taxes. It`s important to ensure that independent contractors are provided with a 1099 tax form at the end of the year.
By using this checklist, you can ensure that you are correctly classifying your workers as employees or independent contractors. Make sure to consult with a legal professional or accountant to ensure your business is compliant with IRS regulations.