By Dean ‘Mac’ Nichols, Attorney
As your business begins its hiring process, use IRS guidelines to determine if each person is an employee or an independent contractor. This employee classification affects the amount of taxes you pay and the tax documents you need to file, as well as whether or not taxes are withheld from workers’ paychecks.
While there are a total of sixteen factors, the IRS will usually focus on t
hree factors to determine your business’s relationship with its workers: behavioral control, financial control, and the type of relationship between business owner and worker.
Behavioral control means determining whether or not the business has the right to direct how work is done. Financial control refers to the business’s right to direct financial and/or business aspects of a worker’s job. Type of relationship focuses on the workers’ and the business owner’s perception of their relationship.
If your business has the right to direct both what is done and how it ought to be done, then your worker probably falls into the category of an employee. However, if you direct the result of the work, rather than the means or method of producing that result, then your worker can likely be classified as an independent contractor.
Both business employers and workers can file Form SS-8, Determination of Worker Status for the Purposes of Federal Employment Taxes and Income Tax Withholding, to determine whether an individual worker is an employee or an independent contractor.
It is important to correctly categorize workers because incorrect classifications can cause your business to face substantial tax liabilities and penalties.
For more information, consult the IRS.gov website or give us a call today. We look forward to helping with any and all of your business’s legal needs.
