Worker misclassification can be a costly mistake. As a result of misclassification of those doing work for you, not only could there be federal ramifications but in some cases, state too. The IRS goes into great detail on how to classify your workers. While the information is out there, it often is confusing. Because of the amount of information it can be overwhelming.

This video helps explain the difference between an independent contractor and an employee.

http://https://www.youtube.com/watch?v=ERMY3ZxMsTc

Also, the IRS has a general rule –  an individual is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done and how it will be done.

In addition, here are two key points to keep in mind when it comes to classifying workers:

1. Control. Most important, the relationship between a worker and a business. If the business controls what work is accomplished and directs how it is done, it exerts behavioral control. In addition, if the business directs or controls financial and certain relevant aspects of a worker’s job, it exercises financial control. This includes:
   • The extent of the worker’s investment in the facilities or tools used in performing services
   • The extent to which the worker makes his or her services available to the relevant market
   • How the business pays the worker, and
   • The extent to which the worker can realize a profit or incur a loss
2. Relationship. Equally as important is how the employer and worker perceive their relationship is also important for determining worker status.  Key topics to think about include:
   • Written contracts describing the relationship the parties intended to create
   • Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation or sick pay
   • The permanency of the relationship, and
   • The extent to which services performed by the worker are a key aspect of the regular business of the company
   • And the extent to which the worker has unreimbursed business expenses

 

At Anastasi Insurance Agency, we can help you avoid the consequences of misclassification and help you determine if your workers are employees or independent contractors.