As an employer, it is very important that you correctly determine whether individuals working for your company are employees or independent contractors. This will affect whether workers are entitled to benefits, how much you pay in taxes, whether you need to withhold from your workers’ paychecks and what tax documents you need to file.
In determining whether a worker is an employee or independent contractor, employers must consider the entire relationship and evaluate the degree of control and independence – there is no one factor which automatically classifies a worker. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are more likely to be employees.
Guidance from the IRS
According to the Internal Revenue Service, facts that provide evidence of the degree of control and independence for determining worker status fall into three categories:
- Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
- Financial Control includes facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
- Type of Relationship relates to how the workers and the business owner perceive their relationship.
For more information and resources related to determining worker status, visit our section on Independent Contractors — How to Classify or click on the Small Business link found on IRS.gov. If you have any questions, you should consult a knowledgeable employment law attorney or contact the IRS for guidance. Businesses may also complete and file Form SS-8, Determination of Worker Status, to have the IRS make the determination.