Tax Tip of the Week
For the week of May 17, 2004

Classify workers correctly

If you have people working for your business, you may face the issue of whether to classify them as employees or as independent contractors.

Classifying your workers as independent contractors generally saves you money. That’s because you avoid paying employment taxes and benefits on their behalf.

In most instances, however, very few of your workers actually qualify as independent contractors. If the IRS determines that you misclassified your employees as contractors, you could end up paying all of the employment taxes and benefits that should have been paid over the years. Depending on the size of your work force, the cost to you could be substantial.

How can you ensure that you properly classify your workers? Start with the factors listed by the IRS to determine a worker’s classification. If you maintain control over your workers through hiring, training, supervision, scheduling the work to be done, and by providing them with tools and materials, your workers are most likely your employees. The same holds true if you pay your workers a set salary or an hourly wage and have the right to let them go at any time.

As a general rule, if you only have the right to control or direct the result of the work and not the means and methods of accomplishing the result, the individual may qualify as an independent contractor.

To find out more about properly classifying your workers, please give us a call.

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