Is That a Real Employee or a Common-Law Employee?
The IRS and the Department of Labor are cracking down on businesses that use independent contractors but treat them like real employees – or, as the IRS calls them, “common-law employees.” Before you misclassify that contractor, ask yourself these 5 questions:
1. Do you control the work? If you direct how and where and at what time someone works for you, then the government says you have an employee, not a contractor.
2. Do you furnish the equipment? If you have given someone a computer or other equipment on which they will perform work for you, they are likely to be classified as your employee.
3. Are you in one of these industries? Some industries are audited at a higher rate than others when it comes to employee misclassification, including nail salons, restaurants, cleaning services, security guards, landscaping companies, property management and drywall. If you are in one of these businesses, you need to educate yourself on employment law with the help of a Creative Business Lawyer™.
4. Is there anything in writing? Most contractors operate with a contract that spells out the work they will provide and the compensation they will get for it. We can help you prepare a contract to ensure your contractors are not deemed common law employees.
5. Do they just work for you? Most contractors are free to work for other people, not just you. Even if they don’t actually have other clients, it should be clear that they are free to pursue other work without your permission.
If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit. Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.
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