Independent Contractor or Employee

Hire 1099 Independent Contractor or Employee?

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Independent Contractor Benefits

There are many benefits to working with Independent Contractors (I.C.’s). Employees can be much more costly in running a small business (we will cover this in future articles).
We can not overemphasize the importance of doing your research first to gain a thorough understanding of what constitutes an Independent Contractor.
Any mistake in set-up or operation can be costly (we know from personal experience).

Our thanks to SBA.GOV for the use of the following info:

Hire a Contractor or an Employee?

Independent contractors and employees are not the same, and it’s important to understand the difference. Knowing this distinction will help you determine what your first hiring move will be and affect how you withhold a variety of taxes and avoid costly legal consequences.

What’s the Difference?

An Independent Contractor:

Operates under a business name

Has his/her own employees

Maintains a separate business checking account

Advertises his/her business’ services

Invoices for work completed

Has more than one client

Has own tools and sets own hours

Keeps business records

An Employee:

Performs duties dictated or controlled by others

Is given training for work to be done

Works for only one employer

Benefits Of Hiring Independent Contractors

Many small businesses rely on independent contractors for their staffing needs. There are many benefits to using contractors over hiring employees:

Savings in labor costs

Reduced liability

Flexibility in hiring and firing

Why Does It Matter?

Misclassification of an individual as an independent contractor may have a number of costly legal consequences.

If your independent contractor is discovered to meet the legal definition of an employee, you may be required to:

    Reimburse them for wages you should have paid them under the Fair Labor Standards Act, including overtime and minimum wage
    Pay back taxes and penalties for federal and state income taxes, Social Security, Medicare and unemployment
    Pay any misclassified injured employees workers’ compensation benefits
    Provide employee benefits, including health insurance, retirement, etc.

Note: There are numerous cases where this has led to failure and closing of the business !!!

Tax Requirements

Visit the IRS Independent Contractor or Employee guide to learn about the tax implications of either scenario, download and fill out a form to have the IRS officially determine your workers’ status, and find other related resources.

Also, See 2014 Publication 15-a.pdf

Employment Information

There is no single test for determining if an individual is an independent contractor or an employee under the Fair Labor Standards Act. However, the following guidelines should be taken into account:

    The extent to which the services rendered are an integral part of the principal’s business
    The permanency of the relationship
    The amount of the alleged contractor’s investment in facilities and equipment
    The nature and degree of control by the principal
    The alleged contractor’s opportunities for profit and loss
    The amount of initiative, judgment, or foresight in open market competition with others that are required for the success of the claimed independent contractor
    The degree of independent business organization and operation

Whether a person is an independent contractor or an employee generally depends on the amount of control exercised by the employer over the work being done. Read Equal Employment Opportunity Laws – Who’s Covered? for more information on how to determine whether a person is an independent contractor or an employee, and which are covered under federal laws.

How Small Business Kickstarter Works

Many of our Custom Programs are designed for the small business on a tight budget. Instead of an upfront investment to get started, we partner with you and are compensated as we grow your business.

We are results-oriented – We Focus On Your Success!!!

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Just tell us about your business in the contact form below (please be as detailed as possible), and we will contact you to set an appointment to discuss.