Worker Classification: Employee or Independent Contractor

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Worker ClassificationEmployee or Independent
Contractor?

• Kari Gilje
• IRS Stakeholder Liaison

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A Note Before We Begin

• This presentation is designed to provide
  information not a specific determination for
  your situation.
• Worker classification determinations are made on
  a case by case basis, depending on the specific
  facts and circumstances.

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Worker Classification

• Workers you hire may be
• Independent Contractors
• Employees
• How do you know?

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Basic Definitions

• Employee
• An individual who performs services for you who
  is subject to your control regarding what will be
  done AND how it will be done.

• Independent Contractor
• An individual who performs services for you but
  you control only the result of the work.

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Employee vs. Independent Contractor

• Categories of Evidence
• Behavioral control
• Financial control
• Type of relationship of the parties

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Behavioral Control

• Type of instruction given
• Degree of instruction
• Evaluation systems
• Training provided by the business

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Behavioral Control

• The key fact to consider is whether the business
  retains the RIGHT to control the worker
  regardless of whether the businessactually
  exercises that right.

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Financial Control

• Significant investment?
• Unreimbursed expenses?
• Opportunity for profit or loss?
• Services available to the market?
• Method of payment?

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Type of Relationship

• Is there a written contract?
• Are employee-type benefits provided?
• Permanency of the relationship?
• Are services provided a key activity of the
  business?

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What if Im Still Not Sure?

• File Form SS-8 with IRS
• At least 6 months to process

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Next Steps Independent Contractor

• Contractor completes Form W-9
• Needs to provide either Social Security Number
  (SSN) or Employer Identification Number (EIN)
• File Form 1099-MISC if 600 or more paid for
  services during year
• See instructions for exceptions

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Form 1099-MISC
XYZ Company 1234 Second Avenue Anytown, WA 99800
XYZ Company 1234 Second Avenue Anytown, WA 99800
XX-XXXXXXX
XX-XXX-XXXX
XX-XXXXXXX
XXX-XX-XXXX
Indy Contractor
Indy Contractor
7,508
7,508
508 Worker Street
508 Worker Street
Anytown, WA 99800
Anytown, WA 99800
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Next Steps Employee

• Employee completes Forms I-9 W-4
• Employer withholds income tax, FICA (Social
  Security Medicare)
• Employer completes W-2 at year end
• W-2 is filed with Social Security Administration
• Visit www.ssa.gov/employer for free online W-2
  filing SSN Verification Service

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Next Steps Employee

• Employer responsible for depositing federal
  income tax withheld, FICA and FUTA taxes
• Deposit taxes using EFTPS
• Report wages, taxes by filing returns
• Form 941 or Form 944 for income tax, FICA
• Form 940 for FUTA

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Taxable Wages

• Can be paid in cash or any other form
• Non-cash measured by the fair market value
• Includes salaries, fees, tips, bonuses and
  commissions

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Resources

• IRS Web site - www.irs.gov
• Type keywords worker classification in search
  box
• Pub 1779 - Independent Contractor or Employee
• Form SS-8, Determination of Worker Status
• Publication 15, Employers Tax Guide

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Thank You!Questions?