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I may be hiring some part-time help occasionally for my handyman business. Will I have to make these individuals employees, or can they be independent contractors? Steve L., Casper

Aug 13, 2010

Most new businesses tend to shy away from hiring employees, due to the complexities of doing payroll and submitting payroll taxes.  Before you write a check to someone as an independent contractor, be sure that you understand how the IRS defines “contractors” vs. “employees.” 

 

In defining the relationship between an employer and an employee or independent contractor, “degree of control” is important.  Questions to consider are:

1. Does the company control or have the right to control what the worker does and how the worker does his/her job?

2. Are the business aspects of the worker’s job controlled by the payer?  Are expenses reimbursed?  Who provides the tools/supplies used on the job?

3. Is the company providing any employee benefits to the individual?  Will the relationship continue?  Is the work performed a key aspect of the business’ operations?

 

The general rule is that an individual is an Independent Contractor if the person/business for whom the services are performed has the right to control or direct only the results of the work, not what will be done and how it will be done.

 

According to the IRS, there is no “magic” collection of factors that automatically define a worker as an employee or independent contractor.  They look at the entire relationship and consider the degree of direction and control to make each individual determination. 

 

At the point that you determine that the individual you are paying can be classified as an independent contractor, you should have the contractor fill-out a FormW-9, Request for Taxpayer Identification Number and Certification.   On this form, you will collect the correct name and Taxpayer Identification Number (TIN) of the worker.  A TIN can be either a Social Security Number (SSN) or an Employer Identification Number (EIN).  The IRS advises that you keep the W-9 form in your files for four years.

 

At year-end, businesses are required to file a Form 1099-MISC to report payments made in the course of a trade or business to others for services.  If you pay someone who is not your employee (subcontractor, attorney, accountant) $800 or more for services provided during the year, you are required to send a form 1099-MISC to the independent contractor by January 31st of the year following payment.  You must also send a copy of this form to the IRS by February 28.

 

One important thing to consider if you are hiring independent contractors is liability in the event of injury.  If you hire an independent contractor to do a job that could conceivably result in injury, you may want to check to see if the contractor carries his own Workers’ Compensation Insurance. 



Tags:
Category: Taxes

Cindy Unger


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