Are your workers considered by the IRS to be employees or independent contractors? How a worker is classified depends mainly on the degree of control an employer has over the worker. According to the IRS, “the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” (Taken from the IRS website HERE) The main differences between independent contractors and employees are:
Independent contractors usually operate under their own business name.
Independent contractors serve multiple clients.
They maintain their own business checking account, send out their own invoices, and keep their own business records.
They have their own equipment and set their own hours.
On the other hand, an employee is someone who is told by an employer what work should be done, how it should be done, and when it is to be done. The worker has little control over their schedule and typically only works for one employer. If your worker is considered to be an employee, then the company is responsible for paying the worker’s wages through payroll. This means the company will need to withhold federal, state taxes, & FICA taxes. The company will also need to submit quarterly payroll reports and issue their workers W-2’s at the end of the year. If your worker is considered to be an independent contractor, then the company is responsible for issuing each worker a 1099 at the end of the year. The worker will then be responsible for paying self-employment tax on his/her earnings. To assist your company in preparing 1099’s at year end, your company should have each independent contractor fill out a W-9 form. To download this form, click HERE. If you would like more assistance in determining whether your company should classify your workers as employees or independent contractors, feel free to call our office at 918-392-7879 or email us.