How to Classify Your Workers
The IRS is very clear about the differences between the two and have a determination list of 20 questions. (For the complete list, visit our website.) Below are seven common situations we see frequently. An answer of YES to any one of these means your worker is an employee, not a contractor.
- Must they follow instructions about when, where and how the work is done?
- Do you provide training so they can perform the job in a particular method or manner?
- Are their services an integral part of your business operations?
- Do you set their work schedule?
- Do they work at your place of business?
- Do you reimburse them for business or traveling expenses?
- Do you furnish them a computer or supplies?
4 Strategies for Business Owners
The following may help you convince the IRS that the person is independent:
1. Write an agreement and have the worker sign that he/she is an independent contractor.
2. Have your worker bill you for the services rendered.
3. Give them as much independence as possible (hours, where to do the work), etc.
4. Have them provide their own tools, computer, supplies, etc.
Bottom line: cost-cutting and tax planning are critical, but when it comes to your workforce, you need to be careful not to misclassify de facto "employees" as so-called independent contractors. If you do, you may face the wrath of the IRS.
For more information on this topic see our white paper on the RESOURCES page at www.accountabilityservices.com.