Is Your Workforce Properly Classified (IC or Employee?)

Do you currently employ a handful of independent contractors? Hiring independent contractors is a great way for business owners to decrease costs and tax liability. You utilize help when and where you need it, and don’t have the burden or a fulltime or part-time salary when business slows down.

But, it is critical that business owners take the time to correctly determine whether the individuals providing services for their companies are really independent contractors, or whether they should be classified as employees.

If they are supposed to be employees and a tax audit reveals that they are misclassified, you will likely be held responsible for paying income taxes, Social Security and Medicare taxes, and unemployment taxes on all wages paid to that employee.

How do I determine whether the worker is an employee or IC? Evaluate your relationship.

If you answer “YES” to the majority of these questions, the individual should likely be documented as an employee, not an IC.

• Does your Company control the worker’s hours?
• Does your Company control where the worker performs his/her tasks?
• Do you pay for the worker’s supplies, equipment, tools, and resources necessary to accomplish his/her job function?
• Do you offer the worker benefits?
• Do you offer the worker vacation time?
• Is the relationship ongoing versus temporary or seasonal?
• Is the work performed by the worker a core service or product offering within your Company?

BE CAREFUL! As we mentioned above, the consequences of treating an employee as an IC can result in being held liable for all employment taxes for that worker (as well as any other misclassified workers). The IRS provides many valuable resources, forms, and answers to common questions. To access their information surrounding ICs and Employees, click here.

For additional information on human resource management, including wage and hour compliance, tax classification and more, contact Employer Solutions Plus.