Employee or Contractor: What Small Business Owners Need to Know | Legal Ease
One of the trickiest questions for small business owners is determining whether someone they hire is an employee or an independent contractor.
“Arriving at a wrong answer in the eyes of the IRS could cost your business thousands," said Beth Milito of the NFIB Small Business Legal Center. “Worker misclassification carries with it costly fines, back taxes and interest payments.”
While there are several tests for determining whether someone is an employee or a contractor, Milito says a key consideration is who controls the manner in which the work is performed. The more the employer controls where, when and how the work is done, the more likely it is that the individual is an employee.
Generally, independent contractors tend to use their own supplies and equipment to perform the work wherever it is convenient. They pay their own expenses and taxes and can work for other clients. Employers are required to withhold taxes and pay Social Security, Medicare and unemployment tax for employees.
“If you're unsure, it's always best to seek outside legal advice or consult with a tax professional,” Milito said.
NFIB also has a webinar available on the subject at www.nfib.com/webinars/independent-contractors, and other legal information is available at NFIB.com/legal. 2:19
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