Employee or Independent Contractor?Whether a worker is an employee ("EE") or independent contractor ("I/C") depends on the facts and circumstances of each case. There are factors which tend to support treatment of a worker as an independent contractor, and factors which tend to support classification of the worker as an employee. From the client or boss's point of view, it is preferable to have an independent contractor. With an I/C, the client does NOT have to pay unemployment or FICA tax. Nor is an I/C covered under many of the burdensome rules which govern an employer's relationship with his or her employees. Payroll for an EE involves lots of paperwork and deadlines and changing laws, where paperwork for an I/C basically involves paying them and giving them a Form 1099 MISC by January 31st for the prior year's payments. EEs are included in most retirement plans; I/Cs are not. Where there are no fringe benefits, EEs cost about 11% more than I/Cs for the same hourly wage. Where there are fringe benefits, the total extra cost of an EE can rise to 25% or more. If you wish to be able to classify a consultant as an Independent Contractor, consider the following: Does the worker possess skills you do not? Have you engaged the worker to perform a specific task, rather than on an ongoing basis? Does the worker decide in what manner the job gets done, rather than following a schedule or procedure which you establish? Does the worker use or bring her own tools to the engagement, or use tools that you supply? Does the worker have other aspects of an independent practice - letterhead, business card, other clients, etc? Does the worker give you invoices on her own letterhead? Do you have a written contact agreement spelling out the terms of her engagement and putting in writing your mutual understanding that she is a contractor, responsible for her own taxes? Any of these factors would support the proper classification of a worker as an I/C, not an EE. The IRS discusses these issues in its Publication 1976 Employee or Independent Contractor?, available at www.irs.gov. I AM NOT A LAWYER; you should ask a lawyer for legal advice.
|
|
Home | About Us | Special Resources | Cool Clients | Contact Us
John Schachter + Associates, Inc.
Last revised: 11/10/04 |