You May Face Penalties!
If you have hired workers as Independent Contractors and they would not be considered as such according to the IRS or your state laws and unemployment regulations, you may face serious consequences. Before you hire an independent contractor you should know the difference between and independent contractor and an employee. If you are paying your employees as independent contractors to reduce your tax liability you may be at risk to face serious consequences. Whether the misclassification was unintentional or intentional, the federal and state punishments may be severe.
In order to determine whether or not a company is responsible for withholding and paying payroll taxes, the employment status of the worker will need to be determined. Let us first determine whether or not your worker is an independent contractor or an employee.
Independent Contractor
According to the IRS Publication, an independent contractor depends on the facts of each case. The general rule is that an individual is an independent contractor if the Payer only has the right to direct the end result of the work. The payer should not have the right to determine the means and methods of accomplishing the result in order to classify the worker as an Independent Contractor.
Employee
Your workers are considered employees if you have the right to direct or control the way they work. For example, if you require the workers to maintain set office hours, the usage of office equipment, and adhere to company policies and procedures then they are probably an employee. As long as you retain legal right to control their activities, they may be considered an employee according to the IRS.
The Right to Control. IRS’s 3 Categories:
- Behavioral control
- Financial control
- Relationship of the parties
Employees Benefits Include:
- Salary or Hourly Wages
- Payroll Taxes
- Healthcare
- Dental
- Vacation time
- 401 K and other benefits
- Insurance
If you have any questions regarding the classification of an Employee or an Independent Contractor, please do not hesitate to call Rosillo & Associates P. A. today. If you have misclassified your workers it is best to fix any errors voluntarily rather waiting to be caught by the IRS. Please contact the offices of Rosillo & Associates for tax help and questions, but also consult your corporate attorney for the proper legal advice. If needed, we can refer you to a qualified professional corporate attorney.