A lot of businesses would prefer to treat workers as independent contractors rather than employees for various tax and liability reasons. However, it’s important to have a good understanding of just what separates an independent contractor from an employee—unless you want the wrath of your state and the IRS breathing down your neck.
The general rule is that an independent contractor relationship exists if you can control the result of the work but not the means and methods of accomplishing the result. Here are some questions to ask yourself about independent contractor classification. If you answer "yes" to these questions, your worker is an independent contractor:
Is there risk of profit and loss to the individual?
Does the individual have the authority to delegate responsibility?
Does the individual provide his or her own work location, tools, and equipment?
Does the individual have control over when, where, and how he or she will work?
Does the individual incur non-reimbursed expenses in the completion of tasks?
Is the individual free to provide similar work for others?
Is there a formal agreement defining scope of work, compensation, conditions, and statement of independent contractor basis?
Check out www.IRS.gov for more information.
ShopTalk 800 Business Consultant
National Association for the Self-Employed
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