BHT&D Certified Public Accountants Blog

Should Your Business Have Employees or Independent Contractors?

Posted by Joe Turnes on Mon, Jul 03, 2017 @ 08:00 AM

Employees vs Independent ContractorsAre your business' workers appropriately classified as either employee or independent contractors? Do you know what the IRS standards are?

This is an area where the IRS has expanded enforcement in recent years as the government looks to increase its revenue.  Employers need to appropriately classify its workers to avoid costly mistakes.  When determining a worker's status, the IRS looks at three primary characteristics:

  1. Behavioral control:  Does the business have the right to direct or control how the work is done through instructions, training or other means?
  2. Financial control:  Does the business direct or control the financial and business aspects of the workers jobs?  Who provides the workers equipment, tools and supplies?
  3. Type of relationship:  How do workers and business owner perceive their relationship?  Does the worker perform similar services for other businesses?

A recent study estimates there are 3.4 million workers misclassified as independent contractors, causing a loss of $2.7 billion in tax revenue.  IRS Form SS-8 is available to help determine the proper classification of a worker.

If you'd like further information about the IRS standards, download our complimentary guide Employees vs. Independent Contractors: 20 IRS QuestionsContact one of our tax professionals if you have further questions.

Tags: Small Business Accounting, Employees vs Independent Contractors