That is the question…sadly, many businesses can’t make this distinction. Most people would answer that someone who is an independent contractor is not an employee. That may be the case but there are many mitigating circumstances that would still have that person be an employee.
According to the IRS, there are actually four different ways to categorize individuals who perform services for you:
- Independent Contractor- an individual is an independent contractor if the payerhas the right to control or direct only the result of the work and not what will be done and how it will be done.
- Employee- an individual is an employee if he/she must report back to asupervisor, has regularlyscheduledhours to work, all work belongs to the employer and is eligible for employer paid insurance benefits and prizes and bonuses paid by the employer.
- Statutory Employee- falls under one of these categories-
- A driver who delivers beverages (excluding milk), meat, vegetables or who picks up dry cleaning and is the agent of the employer and gets a commission.
- A full time insurance agent who works for one insurance company.
- Someone who works from home on materials and/ or goods that are returned to the employer and is given direction by the employer.
- Someone who’s primary job is to take orders on your behalf for merchandise for resale or use in the buyer’s business.
- Statutory Nonemployee- individuals who are direct sellers or real estate agents and are paid for services rendered rather than number of hours worked OR services are performed and expressly not categorized as employees for Federal tax purposes.
Additionally, you have to ask yourself three questions:
- Do you, as the employer, have control over the employee and how he or she performs his/ her job?
- Do you, as the employer, control all business aspects of the worker’s duties?
- Are there written agreements or employee benefits offered?
It’s not as cut and dry as you would think it is and to be safe we would always recommend consulting a professional on a case by case basis. You can review more information at IRS.gov or feel free to contact one of our professionals at Anderson Thornton Consultants.