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Monthly Tidbit - October, 2006 Independent
Contractor or Employee?
The end of the year is coming, and that means we are going to be issuing
W2's and 1099's to the people we pay. This is a great time to really
evaluate if we are doing the right thing. For the employer, it seems
much easier to call people who assist us "independent contractor"
and issue them a 1099. There is no withholding, no worker's comp,
no employer payroll taxes, and no payroll to process. Wow! What a
deal! We should make all our assistants independent contractors! Why
would anyone actually have any employees? WELL, they have employees
because that is the law. In order to be an independent contractor,
the assistant/worker must have three things: behavioral control, financial
control, and an independent relationship.
Examples:
Behavioral Control
- If you give the worker instructions on
- How/When/Where to work
- What tools or equipment to use
- What assistants to hire to do the work (and who pays those
assistants, anyway?)
- Where to purchase supplies and services
- OR if you offer Training to the worker about required procedures
or methods
Then you have behavioral control
and the worker is an employee Financial Control
- If the worker has no significant investment in their work
- If the worker is not reimbursed for expenses (especially high
expenses)
- If the worker has no opportunity for profit or loss from their
efforts
- If a license is required to perform the work, and the worker
does not have their own or did not pay for their own
Then you have financial control,
and the worker is an employee Relationship of the Parties
- If the worker has access to ANY employee benefits, including
paid time off, employee discounts or insurances
- If the worker does not have a written contract for independence
- If the worker does not have the time/ability/permission to work
for others in the same field
Then you have an employee, and
not an independent contractor
The state of California is intensely auditing ALL businesses that
regularly issue 1099's to verify that the business is correctly classifying
the recipients as independent contractors and not employees. Some
industries are accustomed to calling employees independent contractors:
personal services, loan processing, construction, janitorial, and
very small businesses with erratic employment needs. However, the
state of California has been reclassifying most of these workers at
a tremendous expense to the employer. Be sure you are correctly classifying
your workers! For those that really are independent contractors, if
you paid them more than $600 in 2006, then you need to have them give
you a W9 form, which will provide you with their proper tax id, name
as recognized by the IRS and address. 1099's are due by January 31!
Call All About Numbers at 955-2244 if you have any further questions.
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