This coming year, tax professionals tell us that the IRS will be much more stringent about people who are working as independent contractors (reporting income via a 1099 form).
There are four main questions for any employer to ask:
TIME: Are you paying this person on a regular hourly, daily, weekly, or monthly basis? If so, they are considered your employee, NOT your contractor. A contractor sends an invoice for deliverables. Time is not a factor. They work on their own schedule, not dependent or directed by anyone else.
TOOLS: Are you giving this person a computer, work tools, fabrics, or products related to doing the job? If so, they are considered your employee, NOT your contractor. A contractor has their own toolkit or equipment.
TRANSPORT: Are you transporting this person to the worksite? If so, they are considered your employee, NOT your contractor. A contractor has their own vehicle and is not beholden to or reliant on your transportation options.
MANAGEMENT: A contractor has a pre-agreed upon set of deliverables: they typically work with little to no micro-management. If you are requiring your contractor to show up to functions, events, meetings, or specified work hours, typically this means that this is your employee. A contractor works their own hours (hence their status as an independent contractor).
You most definitely will want to consult with an employment attorney to clarify any kinds of questions you have on if you are hiring a part-time employee or an independent contractor.
FROM THE IRS WEBSITE:Who is an Independent Contractor?
A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
Keeping contractors at "arm's length" may not be the right solution, and may not shield you from reclassification risks. If you're using contractors for the equivalent of full time work, you're exposed to more risk than you may realize.
A better option for using "white collar" professionals as contractors is a Portable Employer of Record (PER). This benefits both sides, as the PER becomes the sole employer (not co-employment), eliminating misclassification risk. Business risks are mitigated with Workers Comp, GL, and Errors & Omissions insurances. And costs are controlled with contractors consolidated under a single invoice.
The contractors get group benefits, 401(k), disability, unemployment, and more. They operate independently and serve multiple clients, build their company, and reap their own profits . . . all while having their back office and taxes handled for them.
This may sound newfangled, but its been around for 20 years.
Find out: http://www.mybizoffice.com.
Posted by: Liz | November 7, 2007 8:12 AM | Permalink to Comment