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Corporate

Employees or Independant Contractors

Employee or Independent Contractors

As an employer, it is crucial that you understand the distinctions between an independent contractor and an employee so that you can be sure you are abiding by federal and state tax laws.

If a worker is an employee, the employer is responsible for paying Social Security, unemployment insurance, Medicare, and possibly other costs like workers’ compensation insurance for the employee; at the end of the tax year, the employer is responsible for compiling all necessary payroll reports, including W-2 forms.

If a worker is an independent contractor, the employer is not responsible for any of the above taxes or payments, and the only added paperwork is the issuing of a 1099 to the independent contractor at the end of the tax year.

As the employer, you are not the one who decides whether someone is an employee or an independent contractor; the law does, and there could be penalties if you make an incorrect determination.  The Internal Revenue Service lists three categories of information to be considered in the determination of whether an individual is an employee or independent contractor:

1.  Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

2.  Financial: Are the business aspects of the worker’s job controlled by the payer? (These aspects include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

3.  Type of Relationship: Are there written contracts or employee-type benefits (i.e., a pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

An employer must show there is a reasonable basis to classify the worker as an independent contractor in order to escape the burden of paying taxes for the worker.

If you still aren’t sure whether a worker is an independent contractor or employee, the IRS provides Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF); either the worker or the employer can fill out and send in the form, and the IRS will review the situation and tell you its determination on the matter.

If you find yourself in such a position it is best to consult an attorney with substantial business law experience.  There are so many different circumstances that a proper answer to your particular problem can only be obtained by a trained and experienced lawyer.

If you have any question regarding employment or any other commercial and business matter. our firm may be able to help you.

If you require the immediate services of a highly experienced and aggressive attorney, please call for a FREE CONSULTATION

JUPITER LEGAL ADVOCATES

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