I work with small and medium size businesses. Frequently, the issue arises about whether to hire an individual as an independent contractor or an employee.
It is important to clearly understand the difference so you know how much to pay in taxes, whether to withhold from your workers’ paychecks, whether you need to give benefits, what tax documents you to file and other issues.
Key to Hiring Independent Contractors versus Employees
Every business owner should know the difference between hiring a person as an independent contractor or as an employee. The Internal Revenue Service appears to focus primarily on the extent of the business owner’s control over the worker.
Business owners who misclassify workers as independent contractors can end up owing significant taxes. They can also be charged penalties for failing to pay employment taxes and for failing to file required tax forms. Workers should know their proper work status classification to avoid higher tax bills and potentially lost benefits.
You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee by contacting a skilled business attorney. We can assist you in evaluating whether to hire an individual as an employee or contractor as well as prepare a clear agreement
Some Benefits of Hiring an Independent Contractor
Many businesses rely on independent contractors for their staffing needs. There can be benefits to using contractors rather than hiring employees. Business owners can reduce their liability by hiring a contractor as well as increase flexibility in hiring and termination of the relationship.
Contractors typically pay all of their own taxes and other charges which are not withheld from payments to Contractor.
The Danger of Misclassification
Misclassification of an individual as an independent contractor may have a number of costly legal consequences. If your independent contractor fails to meet the legal definition of an employee, you may be required to:
- Pay them for wages they you should be paid as an employee under the law including overtime and minimum wages.
- Pay back taxes and penalties for federal and state income taxes, Social Security, Medicare and unemployment.
- Pay any misclassified injured employees workers’; compensation benefits.
- Provide employee benefits, including health insurance, retirement, etc.
There is no single test for determining if an individual is an independent contractor or an employee.
Avoid costly Legal Issues and get advice about how to classify your worker.
For more information on how to determine whether a person is an independent contractor or an employee, it is highly recommended that you get help from an experienced attorney to help evaluate the situation so you can make an informed choice about how to classify the worker.
The Law Offices of LIsa Wills can help you make that determination, and further assist by developing a strong contract for both your worker and your business.
Contact Lisa Wills by email or call (925) 463-9000 for professional legal advice to protect your business.