More and more workers are removing themselves from the umbrella of authority that comes with being an employee and joining the “freedom” of freelancing, consulting, or other forms of independent contracting. In addition, more and more companies are contracting projects that were previously assigned to employees in an effort to cut costs by eliminating benefit packages. The key is knowing the correct way to classify a worker. The IRS implements stiff penalties against companies who avoid tax responsibilities, innocently or not, by classifying an employee as an independent contractor.
They key factor in determining the difference centers on “control” as it applies to the relationship between the worker and the company.
Behavioral Control
• Is there a contract describing the relationship the parties intended to create?
• Does the business provide specific instructions and training or does the worker explain to the business what nature of the problem, and resulting solution?
• Does the business maintain the right to control how, when and where to perform the work or does the worker let the business know when he/she available?
• Does the worker perform services, which are a key aspect of the regular business of the company or offer specific services to a specific need?
• Does the worker concurrently offer like services to relevant markets?
• What is the permanency of the relationship?
Financial Control
• Do you as a business set the hours and wage or does the worker have an establish fee usually by the job) for the work being completed?
• Do you as a business cover travel and business expenses or does the worker provide for his own overhead
• Do you supply the necessary tools and equipment or does the worker provide his own
• Do you hire assistants or does the worker bring his own and set additional fees accordingly?
• Do you provide an office or does the worker have his own office outside the company?
To summarize, an employee performs his duties at the direction of his employer, who has the ultimate control of what work is accomplished; an independent contractor runs his own ship.
At first glance, it can be advantageous to classify a new employee as a contract worker. It saves tax responsibilities and the cost of benefits. It is far better to pay the extra expenses involved with an employee, however, than to face IRS penalties, legal fees, etc. for misclassification. Of course, if a worker is truly an independent contractor, why not realize the financial benefit.
Contact Springborn: We will find potential employees and independent contractors for all your open positions and needs in Bangor and Portland, Maine.
