Employee or independent contractor? The ranks of contract employees have grown in recent years, due in part to a lengthy downturn in the economy. Using part-time and contract workers can help to save money, but there are some risks associated with this type of worker.
As a business owner or manager, you’ll want to pay close attention to IRS rules that specify when a worker is actually an employee and not an independent contractor.
The IRS has a specific definition for categorizing a worker as a self-employed contractor versus defining a worker as an employee. The key concept to keep in mind is this: Who has control over the worker? Is he or she self-directed or under the direct control of a supervisor?
Small and large businesses have been penalized for improperly classifying their employees. It can be a costly mistake: One audit of a business employing two-dozen contract workers that were categorized incorrectly over a period of several years could result in a huge penalty. Take the time to review IRS regulations in this area and if necessary, consult a business tax professional. This is definitely one area you’ll want to get right!