Independent Contractor or Employee? How to tell the difference.

08 October 2013 / Uncategorized / Comments Off on Independent Contractor or Employee? How to tell the difference.

Welcome to another edition of Tuesday Tidbits where we make tax and accounting simple. I'm your host Charles D. Shapero CPA with Widget Bookkeeping & Tax, and today we're going to talk about a topic that affects almost every business owner. Whether your people who are working for you are independent contractors or employees. So what's the difference? What we're talking about in this issue is who's gonna pay the social security and the medicare taxes that this employee should be paying. If they're independent contractors the business owner doesn't pay them, they pay them. But if they're employees, we pay half, they pay half. So it's very economical to classify them as independent contractors because we save the tax money. What the IRS will do is they will come in and they will hit the employer for all the taxes we should have withheld from their employee paychecks, plus they'll hit us for the employer portion. So it's a really big issue. So what does it boil down to? How do we know? Are they an independent contractor or an employee. Way back a few years ago, there was a court case called Elliots, they decided on a 20 factor formula on how to classify independent contractors vs employees What the court looked at, when it looked at this court case was, okay we have certain factors that think that these people should be employees, certain factors that they should be independent contractors, which... Which is more? And that's what we kinda have to look at with everybody we hire. IRS has a form, and you can find it on the resource page of our website it's SS8, now what that form is used for is you fill out give them all the facts and the IRS can make a determination as to whether a person is an independent contractor or an employee. We don't want the IRS to make that determination, but we can use the form because it has a lot of the questions we're gonna need to ask ourselves to classify these people. The bottom line: It really comes down to control. Do we tell the person, employee or independent contractor, when to be here? How to do their jobs? Do we provide the tools necessary for them to do their job? Do they work for anybody else? These are some of the factors that you're going to be talking through when you decide to classify the people that work for you. This concludes today's Tuesday Tidbit, see you next Tuesday. Widget Bookkeeping & Tax Know More Keep More