Are Your Workers Employees Or Independent Contractors?
As a business owner, one of the most important factors when filing your taxes is whether your workers are classified as employees or independent contractors. Why? As an employer, you must withhold income taxes on wages paid to an employee, in addition to paying Social Security, Medicare, and unemployment taxes. However, you typically will not have to withhold or pay any taxes on wages paid to an independent contractor. How can you determine how to classify your workers?
You and your workers should have an understanding about of relationship, and how it is perceived. Have there been any written contracts that explicitly state the relationship you intended to enter? Have there been any contracts that indicate the benefits you intend to provide, such as health insurance, vacation, maternity, or sick pay, or a pension/401k plan? Evaluating and answering some of these questions can go a long way toward helping determine the status of your workers.
Do You Exhibit Control?
If you control the work that is accomplished by a worker and oversee how it is done, then you exhibit behavioral control over a worker. If you direct financial aspects of a worker’s job, such as how the business pays the worker or the extent to which the worker can realize a profit, then you exhibit financial control over a worker. If you exhibit control, then your workers may be classified as employees.
Curious About Your Worker’s Standing?
If you’re a small or medium business owner and are looking for advice on how to classify your workers, contact the staff at Sherbetjian. We specialize in the tax code for businesses and have filed a variety of returns, including S-Corporate, single or multiple member LLCs, and Partnerships. By working with the team at Sherbetjian, you can rest easy knowing your tax returns are covered, granting you more time to focus on the daily operations of your business.