One of the most popular questions we are asked at this time of year is:

How can I determine if I should consider someone an employee or issue them a 1099? 

So… if you are wondering the very same, first take comfort that you are not alone! 
We would like to offer some tips and recommendations to make this process easier for you.   If you have any questions at all or would like to double check something just pick up the phone and we’ll be there to help.

Here is a quick review of some of the key things the IRS tells its agents to look at in determining whether a worker is really an employee or an independent contractor:

The primary inquiries fall into three categories:

    •    Who has financial control of the job?
    •    Who can exercise control over how the worker performs the specific task?
    •    And how do the parties themselves view the relationship?
        (When reviewing the checklist, keep in mind that the IRS will make its decision based on the whole picture, not just a single factor. )

Workers are more likely to be classified as independent contractors if they:

    •    Make a significant investment in business property (a home computer is not significant);
    •    Pay their own business expenses;
    •    Receive a flat fee that is not based on an hourly or similar rate;
    •    Are not prohibited from doing work for other companies;
    •    Can pay subcontractors to get the job done;
    •    Are not performing services as an integral part of your regular business;
    •    Have a contract with an enforceable liquidated damages provision;
    •    Can make a profit;
    •    Can suffer a loss.

Workers are more likely to be classified as employees if they:

    •    Are given specific instructions and on-going training in how to get the work done;
    •    Cannot work for others;
    •    Have expenses paid by your company;
    •    Are paid with a salary or hourly wage;
    •    Do not have a significant investment in their trade or business;
    •    Are an integral part of your regular business;
    •    Receive direct reimbursement for all, or almost all, expenses;

Less important is:

    •    Whether or not the work is performed on the business’s premises;
    •    Whether the worker has flexibility in setting hours;
    •    Whether the relationship is temporary or short-term;
    •    Whether the work is full- or part-time;
    •    Whether the worker performs services for one or more businesses.

When considering the differences above please remember that it is not the same to pay an equivalent hourly wage to both an employee and an independent contractor.  If someone is considered an employee you are responsible to pay your share of employer taxes for that individual.  If you have any questions after reviewing the above information we would be glad to help walk you through the process on what might work best for you and your business.