You probably already know the primary difference when it comes to contractor versus employee. You only pay contractors or freelancers a fee for their work. While with employees, you\u2019re also responsible for employment taxes and often other benefits.<\/p>\n
The IRS itself states that “\u2026there is no \u2018magic\u2019 or set number of factors that \u2018makes\u2019 the worker an employee or an independent contractor.” And you can\u2019t use just one factor to make the determination. For example, you can\u2019t call an individual an independent contractor simply because he or she works out of a home office instead of yours. Rather, you have to look closely at the whole relationship between your company and them. You need facts. In addition, you need to consider the “\u2026degree of control and independence” involved, in three different categories.<\/p>\n
Do you as the employer have the right to control how the individual works? In general, there are four ways to measure that:<\/p>\n
There are several questions to consider here. Does the individual:<\/p>\n
How would you and the individual characterize your relationship with each other? Do you have a written contract? Do you offer employee benefits? Also, did you hire him or her expecting that the relationship would go on indefinitely? Furthermore, are the individual\u2019s contributions to the company a “key activity” of the business?<\/p>\n
As you can see, it\u2019s more complicated than you might think. In addition, the IRS takes this issue very seriously, and has been known to follow up with companies where at least some of the classifications were suspected to be in error. Hence, it is important to give proper attention to this issue.<\/p>\n
If you still can\u2019t determine whether an individual is an employee or independent contractor after going through all the above questions, you–or someone who works for you–can complete and file an IRS Form SS-8<\/a>. This is a rather lengthy document designed to help determine a worker\u2019s employment status.<\/p>\n