Is the person you classified as an independent contractor really an employee (or “common-law employees as the IRS calls them) instead?
The Internal Revenue Service (IRS) and the Department of Labor are cracking down on businesses that misclassify workers. Before you misclassify a worker as an independent contractor, ask yourself these 5 questions:
1. Do you furnish the equipment? Giving someone a computer or other equipment to use on the job increases the likelihood they will be classified as your employee.
2. Do you control the work? If you direct how, where, and at what time someone works for you, then the government will likely say that person is an employee, not a contractor.
3. Do you have a written agreement? Most contractors work under a written contract that spells out the work they will perform and what they will get paid for it. We can help you prepare an agreement to ensure your contractors are not deemed common law employees.
4. Are you in an industry with a high audit rate? Some industries are audited at a higher rate than others when it comes to employee misclassification. These industries include: restaurants, security guards, nail salons, cleaning services, landscaping companies, and property management companies. If you are in one of these businesses, you need to educate yourself on employment law with the help of a Creative Business Lawyer.
5. Are they free to work for others? Contractors should be free to work for other people, not just you. Even if they don’t actually have other clients, it should be clear that they are free to pursue other work without your permission.
If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT (legal, insurance, financial and tax) Foundation Audit. Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.