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How Do I Know if My Employee is a Contract Worker?

By June 27, 2014August 28th, 20142014, Tax Tips

When navigating the potential of having employees, it can be difficult as a small business owner to keep track of whether you have actual ‘employees’ or you have ‘contract workers.’ This distinction is extremely important, and misidentifying your workers can lead to financial consequences. APOLLCFortunately, it’s possible to assess whether you have a contract worker or an employee by considering several key factors. The IRS has a list of twenty key factors to make the determination here and there are a few specifics that can help you make the determination.

As the employer of the average employee, you will be responsible for providing all necessary equipment that allow that employee to do their job. You will provide tools, materials, and software as necessary. However, a contract worker will usually provide these things for themselves. Therefore if you are hiring a new employee but expecting them to ensure they have all of the tools and materials necessary for their job, you are hiring a contract worker.

If you are hiring an employee as part of a specialized group or from another business, you are hiring a contract worker. Contract workers are often part of another business – such as painters, or commercial glass experts – and come to your business on a by-job basis. Some contract workers may be paid an hourly sum, but usually they provide a time estimate for their work and a sum is agreed upon before work begins.

If you mistakenly identify an employee as a contract worker when they are not, the consequences are usually mostly fiscal. You will need to pay your portion of all missed federal, state, and social security taxes and it may even trigger an audit. Call ATS today at 303-232-8300 and schedule your free consultation with our experts to ensure you have not misidentified any of your employees.

Accounting & Tax Solutions

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