Sometimes companies need to hire independent contractors to get certain jobs completed. However, you may be misclassifying one or more workers if you're intentionally hiring people and classifying them as independent contractors to avoid one or more of the following:
- Employment taxes
- Employee benefits
- Overtime obligations
- EEO Discrimination claims
- Unemployment Insurance
There are three different tests employers can use to determine if their workers are properly classified:
- Common Law
- Darden Factors
- IRS Factors
Different audit agencies use the one they prefer but the fact is that they all essentially state the same things for determining proper classification.
The likely hood of being audited is relative to the number of contractors you use and for how long you use them. The bigger the number or longer the period in which they stay around to work on a job... the bigger the target.
Key Pointers for Employers:
- Treat contractors as entrepreneurs, business people, not employees
- Always use 1099's on independent contractors
- Create, sign and keep a contract outlining the project details
- Care only about the end product and avoid trying to control how and when they carry out their tasks
- Do not train or discipline contractors
IF YOU TREAT THEM LIKE AN EMPLOYEE... they're an employee.
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