Employee or Independent Contractor?

As a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file. 

Here are some things every business owner should know about hiring people as independent contractors versus hiring them as employees.

  • If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees. 

  • If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.  

  • Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms. 

  • Workers can avoid higher tax bills and lost benefits if they know their proper status. 

Talk to your advisor to learn more about the determination of a worker’s status as an Independent Contractor or Employee or go to the IRS website  (www.irs.gov)  and select  the Small Business link.