Employee or Independent Contractor?

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In today’s economy with “gig workers” and the like the question for businesses as to whether or not a person is an employee or independent contractor is more difficult to answer than ever before.  Since getting the determination wrong can result in business being charged with the unpaid employer share of the employment tax and possibly penalties, business owners would be wise to review the IRS standards.

There are two vital points that the business owner should note at the onset. First the IRS does not care how “you” view the employer’s status. Secondly, that the employee/independent contractor definitions for the IRS tax purposes can be very different from those that exist in other areas of the businesses operations (i.e. negligence liability).

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The IRS will look to three main areas to determine if the worker is an employee or independent contractor of the business.  Those being behavioral control (the what, where and how the work is done), financial control (how and when worker is paid) and the relationship of the parties (such as worker participation in pension plan or vacation pay).

If you own a business and think you might have misclassified an employee there is hope. The IRS has a Voluntary Reclassification Settlement Program and Beige Law can help you maximize the value of this program.

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