In the last post I shared some of the costs you incur when hiring an employee. If you missed the post, you can read it here: https://affordablebookkeepingandpayroll.com/?p=1001
Today I’ll discuss some of the factors the IRS uses to determine if the worker should be classified as an employee on a W2 form, or a contractor on a 1099 form.
The guidelines the IRS uses when determining if a worker is an employee or contractor fall into three categories: behavior control, financial control, and relationship of the parties. Let’s look at these in more detail.
1. Behavior Control refers to facts that show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work.
2. Financial Control refers to facts that show whether or not the business has the right to control the economic aspects of the worker’s job. These include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.
3. Type of Relationship refers to facts that show how the worker and business perceive their relationship to each other. Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
As there is so much information to share in each category, I’ll go over each in a post dedicated to each factor.
If you have questions, feel free to contact us at 310-534-5577 or [email protected].
Candy
