Contractor Vs Employee: Know the difference for year end!
Posted on October 28, 2016

Do you have people who work for you?  If you do, you need to know whether they are an independent contractor or an employee.  This is an important distinction that business owners need to take the time to consider.  Why is it so critical?  As the business owner you could be liable for withholding and remitting taxes on employees to the IRS and your state government.  If you don’t and these entities find out you weren’t remitting taxes, you will owe the taxes plus penalties and interest…not fun!

There are many websites out there with information about how to determine who is an independent contractor and who is considered an employee.  Most of these criteria focus on the level of control the employer has and the nature of the work.  If the work is integral to the business and ongoing, most likely you have an employee.  If the work is temporary and non-integral to the business, you’ve probably got an independent contractor.

Other things to consider when determining independent contractor vs employee are as follows:

-Does the person supply their own tools and supplies?

-Can the worker determine when he/she comes and goes without fear of losing their job?

-What type of skills are required for the work?

-Does the employer have authority over how the work is accomplished or just gives an outline?

It can be tricky to determine but is definitely worth the time and effort to do so correctly!  The employer will not be liable for taxes if deemed an independent contractor, however, employees need to have state and federal unemployment tax, social security tax, and workers compensation/disability withheld from their earnings.

The IRS website has lots of helpful information at the following link:

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

Once a status is determined, take the necessary steps needed if taxes are to be remitted.  It can be a complicated area so be sure to seek expert help if needed.

 

Sincerely,

Jordan Ilderton, CPA

beachview

 

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