Independent Contractors and Employees

I hear the following constantly:  “should I hire independent contractors or employees in my business?”  I respond “you don’t get to decide, the law does.”  Let me explain.  Regardless of what you call a worker, substance of the job determines whether someone is an employee or contractor.  Based on the substance, the law decides the classification.  So after my initial response, the conversation moves to determining what the individual will be hired to do.  The IRS published a multiple point test to determine whether someone is an independent contractor, but I will not bore you with that.  If you are interested, you can find the test here.

To make things as simple as possible, the test boils down to control and independence.  How control is exercised over the individual performing the service? The less control exerted, the greater likelihood someone falls into the independent contractor category.  How much independence does the person have in performing their duties?  The more the better.  I know this is an oversimplification of this complex area but I am trying to make the point that one cannot decide the classification.  The law dictates.  Because of this, it is extremely important to work with an attorney to help you properly classify your workers. Improper classification causes more problems for businesses than you can imagine.

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