We have lately determined that some of our clients may be incorrectly characterizing a worker as a independent contractor when they should be an employee. Understandably, many small business owners do this because it is cheaper and easier. However, the IRS can assess retroactive tax liabilities and penalties if you are audited. We would be remiss if we didn’t ensure that our clients are aware of all the factors involved in the employee versus contractor question.
There is no single test to determine if a worker should be treated as an employee or a contractor.
The IRS has developed a list of 20 factors that may be examined in determining whether an employer-employee relationship exists. We spent some time studying this issue and have prepared a simple Q&A tool for determining if a worker should be classified as an employee or a contractor.
You can download the tool Here.
We suggest that the form be completed for any workers who you are using as contractors. If the results of the questionnaire indicates workers should be employees rather than contractors then you have three choices:
- You could ignore the problem and hope you never get audited
- You could change some of the factors on the 20 question list from “yes” to “no” by changing some of the circumstances of your relationship to the worker
- You could make the worker an employee.
