You are ready to expand your team and have plenty of work to be done. Should you hire an employee or bring someone on as a contractor? It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors.
Mistakenly classifying an employee as an independent contractor can result in significant fines and penalties. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.
The Internal Revenue Service uses a 20 factor checklist to determine whether you have enough control over a worker for them to be categorized as an employee. A few factors to consider are:
• Do they work for more than one firm?
• Do they own their supplies and equipment?
• Is this an ongoing relationship?
• Do they set their own hours?
• Are they paid hourly or paid by the job?
• Do you provide training to the worker?
For more detailed information on how to determine the status of a worker, click here: https://www.irs.gov/pub/irs-pdf/fss8.pdf