Employee Or Independent Contractor: Basic Yet Helpful Info For Assessment

by Kazi asif Mahmud Professional SEO Expert

To start off, you should be able to differentiate between an employee and independent contractor. The latter is someone who offer his own services to the public. Further specification of an individual as an independent contractor, however, largely depends on trade-specific conditions. Generally though, one is considered to be an individual contractor if the client who pays for the services rendered does not recognize nor practice any form of control over how the work gets done. The payer has the right only on the outcome of the work done.

An employee, on the other hand, is someone who provides the services in behalf of you, with you being the employer. You, as the employer, have full control on the things done and how they are done. Even in cases when the employer gives the employee complete freedom in their own strategies at doing things, the employer still maintains the right to decide on the major stuff such as the kind of services offered as well as their value in the market.

The degree of control as well as the level of independence are two of the most useful tools to help specify whether a worker is an employee or independent contractor. There are three categories you can look into for further assessment. One revolves around the behavior between you and your worker. It looks into the amount of control taken by the worker in doing the job. Next in line is the financial aspect. The payer's involvement in the worker's payment, reimbursement of the expenses involved and the provision of the supplies and tools needed to get the work done all belong to this area of consideration. Lastly, there is the relationship between you and your worker. Any written agreements must be noted of especially those that refer to the benefits offered.

It is highly possible for the worker to be considered an employee based on a factor but an independent contractor when considering the other factor. There is no clear-cut rules, and the factors do not outweigh each other. The technique in making the assessment is to take a look at the whole set-up, take note of the level of control and direction involved and strategically put all factors into documentation to further clarify the assessment process.

If you are unable to come up with a clear answer on whether your worker is an employee or independent contractor even after a thorough review and assessment of the details involved, you can get some help from the IRS. Both you, the employer, and your worker can do so by simply filing out and submitting a Form SS-8. Using the information you provide in said file, the IRS can assess all the details involved and come up with a decision as to the status of your worker. It takes a minimum of six months for this process to be completed and a decision to be set, making this procedure most applicable to employers who intend to continuously hire the same kind of workers over time.

Once determination, whether by self-evaluation or with the aid of the IRS, has been done, you can proceed to work out on your obligations. Independent contractors are charged with self-employment tax. Form W-9 must be filled out to determine the individual's name and TIN. Form 1099-MISC is filed to serve as a payment report. If you are paying at least $600 to a contractor within a year, Form 1099 MISC must be filed, and a copy of which must be furnished to your worker within the month of January and another to the IRS before the last day of February in the year after the payment is made. Because contractors can hire subcontractors, you must be aware of the tax responsibilities of these people as well.

With employees, the federal income tax must be taken from their wages. As for the Medical and Social Security taxes, half of which should be taken from their wages while the other half is paid by you as their employer. The Form W-4 of the employee can help you in determining the amount of money you must withhold from the employee's wages to pay for the tax responsibilities of said individual.

Regardless if you are an independent contractor or an employee having an accounting service taxfyle.com/blog/independent-contractor-taxes.