It’s critical that business owners correctly determine whether the individuals providing services are employees or independent contractors. If you have any doubts, contact a payroll service provider such as Manager’s Payroll for advice.
There are three categories of facts that provide evidence of the degree of control and independence:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
The consequences of making a misclassification mistake can be costly. If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker.