Independent Contractor or Employee?
Insuranceguru August 28, 2013
The phrase “1099 employee” is spoken many times during our conversations with Human Resources Managers and owners of information technology companies. It seems to be difficult for businesses to determine the status of workers for tax purposes. Knowing the steps to take will make the process easier and will help you avoid any penalties for wrongly classifying contract employees. Here are some highlighted points on what the Internal Revenue Service says about 1099 workers.
The IRS refer to common laws that define how to classify workers:
- Behavior: Does the company control or have the right to control what the worker does and how the worker does the job?
- Financial: Are the business aspects of the workers job controlled by the payor?
- Type of Relationship: Are there written contracts or employee type benefits. Will the relationship continue and is the work performed a key aspect of the business?
Differences between Employee and 1099
Employees are paid on a w-2. Taxes and Social security are taken out of their salary. Anyone who performs services for you is your employee if you can control what will be done and how it will be done.
Independent Contractors (1099) are self-employed and are responsible for understanding the tax obligation check out this site to help. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center
1099 ARE NOT EMPLOYEES
The definition of a 1099 is that of an INDEPENDENT CONTRACTOR. They can be a separate entity, LLC or Corporation; they can also be an individual or Sole Proprietor.
If you are still confused on how to classify your workers the IRS will help you determine the proper way to classify your employees. The website gives you an interactive page to submit the request. Properly classifying your workers will enable you as the employer to avoid costly fines and penalties.
Image from smallbusinessadvocate.com