Employee or independent contractor?

Small business sometimes struggles with differentiating between employee and independent contractor.

IRS recently issued a new publication to detail out what the difference are and how you can determine the status so you can handle tax related matter properly.

IRS determine worker classification based on facts. These facts fall into below three categories.

1. Behavioral Control

· If business has the right to direct and control the worker, he or she is employee. For example, employee receives a lot of instructions on how the work should be done.

(when, what, how and where). Employee receives training on process and procedures.

· Independent contractor receives much less instructions. Instructions is mainly on what to be done.

2. Financial Control

· Independent contractor has significant investment in the work.

· Independent contractor is not reimbursed for some or all business expenses.

· Independent contractors can realize a profit or incur a loss

3. Relationship of the parties

· Employee normally receive employee benefit from company

· A written contract may suggest if he or she is employee or independent contractor.

It is important to classify status correctly, as classification impacts your eligibility for social security benefits and Medicare benefits.

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