May 26, 2016

Worker Classification: Employee or Independent Contractor?

On-demand companies such as Uber have brought attention to classification of workers.  Namely, when are workers employees, and when are workers independent contractors?


Proper classification of workers is critical for any business that retains a work force.  The Internal Revenue Service views the matter of employee payroll taxes very seriously.  Did you know that the owners of a company (and not just the company itself) can be held personally liable for failure to withhold and transmit employee payroll taxes to the IRS and other taxing authorities?

Ouch.

And let me tell you ... Business tax audits that delve into employee payroll tax matters can quickly turn into a lot-of-no-fun for the business owners.

A business does not have a legal right to arbitrarily choose how to classify its workers.  Rather, worker classification (employee or independent contractor) is determined by reviewing (1) the degree of control a business has over the worker, and (2) the degree of independence, including financial independence, possessed by the worker.


IRS Publication 1779 provides guidelines for determining worker classification.  If a business cannot successfully render a determination of worker classification, it can request the IRS do so by completing and filing Determination of Worker Status Form SS-88.  Keep in mind the IRS may take 6 months to render its determination of worker status. 

Questions about Financial, Tax, or Insurance Related Business,
Employee, or Independent Contractor Issues?

I welcome your call or e-mail if you have tax or insurance concerns related to business, employee, or independent contractor matters.  For information about my Insurance Consulting, Expert Witness, and Tax Services visit Fouts Financial Group.

Mary Rae Fouts

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