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Critical employee classification questions for businesses

On Behalf of | Nov 9, 2017 | Income Taxes |

As businesses hire temporary employees (or agencies) to complete end-of-year work, it is critically important for such workers to be properly classified. Classification mistakes can lead to host of taxes and penalties.

Knowing the difference between employees and independent contractors (for tax purposes) is largely based on how much control the employer exerts over the employee in the completion of the work assigned. While this may seem like a straightforward distinction, it can become a complicated issue for those unfamiliar with the factors the IRS uses to determine the difference. They include, but are not limited to, the following:

Behavioral control of the worker – When the instructions to complete the work or job come exclusively from the employer as opposed to recommendations from an outside party, chances are that the relationship is an employer-employee relationship.

Hiring of assistants – If the party entrusted to perform the work has the authority to hire assistants and other subordinates, chances are that the party is an independent contractor as opposed to an employee.

The financial relationship between the parties – If the worker is paid an hourly wage for performing services, chances are that he or she may be considered an employee.

Written contracts – If there is a written contract expressly detailing that the individual or company is an independent contractor, it is possible that a court may not disturb the relationship.

While these are a sampling of the IRS factors, it would be wise for employers who are uncertain of their workers’ statuses to clarify them. An experienced tax law attorney can help.

The preceding is for informational purposes only and is not legal advice. 


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