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Have you misclassified employees as independent contractors?

July 9, 2014

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An employer enjoys several advantages when it classifies a worker as an independent contractor rather than as an employee. For example, it isn’t required to pay payroll taxes, withhold taxes, pay benefits or comply with most wage and hour laws. However, there’s a potential downside: If the IRS determines that you’ve improperly classified employees as independent contractors, you can be subject to significant back taxes, interest and penalties.

To determine whether a worker is an employee or an independent contractor, the IRS considers three categories of factors related to the degree of control and independence:

1. Behavioral. Does the employer control, or have the right to control, what the worker does and how the worker does his or her job?

2. Financial. Does the employer control the business aspects of the worker’s job? Does the employer reimburse the worker’s expenses or provide the tools or supplies to do the job?

3. Type of relationship. Will the relationship continue after the work is finished? Is the work a key aspect of the employer’s business?

Determining the proper classification under these factors may not be easy. If you’re concerned you may have misclassified workers, please contact us.

© 2014

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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