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More than a Name: Is a Worker an Employee or an Independent Contractor?

For all employers – including small businesses – it is important to understand whether its workers are employees or independent contractors. The Internal Revenue Service requires that employers withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an employee. Independent contractors, on the other hand, are likely to be subject to self-employment tax, but the business retaining them is not required to withhold or pay any taxes on payments to the independent contractor.

So how can you tell whether a worker is to be treated as an employee or independent contractor? One key consideration for businesses to evaluate when confronted with this issue is the degree of control that the business exercises over the worker.

In considering this key factor, a worker is likely to be considered by the IRS to be an employee if the business controls what work is to be accomplished and directs how it is to be done and, in the process, the business exerts behavioral control over the worker. Another indication of an employment relationship exists if the business exercises financial control over the worker – determining the worker’s compensation and determining whether the worker is able to make his or her services available to others in the relevant marketplace.

While the degree of control is a key consideration in this analysis, there are other factors of the business/worker relationship that the IRS examines in determining the proper worker classification. The Business and Employment Law Group’s attorneys at Stock and Leader are experienced in this area of practice and are able to assist businesses when confronted with questions relating to worker classification.

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