Do you have misclassified workers?
Independent contractor and employee — Do you know the difference between the two classifications? As you look over your third-quarter payroll reports, take time to review the status of your workers to help you stay away from misclassification issues down the road.
Knowing the difference is crucial
Often, figuring out if a worker should be classified as an independent contractor or an employee isn’t easy.
The IRS looks at several factors when determining if a worker has been improperly classified as an independent contractor by an employer. But the final determination depends on the facts and circumstances specific to your business.
Where should you start?
Under IRS rules, control is one useful way of resolving the issue. Evaluate your right to control both the end result expected of the person performing the service for your business, and the means of achieving that result. More control (like providing an office, materials or equipment) can indicate employee status.
What to do if misclassification occurred
If your workers have been misclassified, you’ll need to begin treating them as employees. When you voluntarily change the classification of your workers, you may also be able to participate in the Voluntary Classification Settlement Program. This IRS program provides partial relief from employment taxes that would have been due in prior years, as well as the related penalties.
You can find more information on how the IRS classifies workers the Independent Contractor (Self-Employed) or Employee page on the IRS website:
Understanding Employee vs. Contractor Designation