THE simple DIFFERENCE BETWEEN WHO ARE EMPLOYEES AND WHO ARE INDEPENDENT CONTRACTORS
It has been declared that with a recent court decision with a popular transportation company the differences between employment and contractor designations and their classifications are important because it determines if an employer must withhold income taxes, pay Social Security, Medicare and unemployment taxes on wages paid to an employee. Businesses “normally” do not have tax withholding on payments to “independent contractors”. This is because the 1099 recipients of 1099’s known as independent contractors are subject to self-employment taxes and are filed with their individual income taxes at year end. Classification errors can cause penalties and additional expense for business owners that had no basis to report as such and can create higher employer liabilities and accounting expenses for the mistake.
The rule is that an individual is an independent contractor if the payer can tell them what to do as a result of the work performed, not what will be done and how it will be done. Small businesses should look up online who is an employee as there are many free tools at our disposal Whether a worker is an independent contractor or employee depends on the facts with each situation. State law can sometime be different but is suggested to follow federal rule, as federal “Trump’s” state, as federal laws allows for the degree of control the employer controls over its workers, and the type of work performed.
- The organizations appropriate to direct and control the work performed by the specialist
- Ideal to direct or control the budgetary and business parts of the laborer’s activity; and
- Regardless of whether the work performed is a key part of the business.