Schedule a Business Setup Consultation with a Company Attorney
Ignorance is not bliss – it is dangerous. Watch this brief overview video describing the difference between employees and independent contractors and what you need to do to prevent paying back employment taxes and penalties.
If you have any doubt about whether someone working for you is an independent contractor or an employee, you should seek the advice of an employment attorney. The I.R.S. uses a complicated test that looks at many different factors to make this decision, and an attorney can help you evaluate the factors and make the right decision for your business.
Consult with one of our Portland or Seattle business attorneys for the setup and expansion of your business to find out how your workers need to be classified. You can call, email, or fill out our form.”Contact
Employee v. Independent Contractor
How much control do you exercise over the people who work for your company? Whether you have employees or independent contractors can be a big issue for your business. For employees, you must pay state and federal unemployment, disability, and social security taxes. These requirements do not apply for independent contractors. Your company is also more likely to be responsible for the negligent conduct of employees than it is to be accountable for the actions of independent contractors.
What Constitutes an Independent Contractor?
A person is an independent contractor and not an employee when they provide products or services from their own business, when they get to shape their hours and duties, when they can turn down and accept assignments as they choose, and when they send you invoices for payment of services/products. If you dictate when they work, where they work, and/or how they work, then you are treating them like an employee and could be held liable as their employer.
Incorrect Classification of Workers
Although it may be tempting to classify a worker as an independent contractor because of the tax savings and liability benefits, it can be risky to make that determination without sound legal advice. If you incorrectly classify someone as an independent contractor, you may be required to pay past taxes and a steep penalty to the I.R.S. A mistaken classification could also cause you to do without insurance that might be needed to protect your business from the mistakes of your employees.