There has been a lot of discussion in the news recently about Independent Contractor status vs. being an Employee and how to tell the difference, both from the worker's and the company's perspectives.
Is someone you have working for your business or are considering bringing on to your company an Employee vs. Independent Contractor?
There are a bunch of hoops to jump through and paperwork to be completed and forms filled out that all need to be completed when you hire an employee, so in my opinion a worker should be considered an Independent Contractor unless all the Employee paperwork is complete, but the IRS has a different view.
The IRS believes that they loose out on tax revenue by workers being misclassified, so have taken the opposite position and classify everyone as an employee, unless they are proved to truly be an independent contractor, even if the employee hiring paperwork hasn't been completed because the company intended for them to be an independent contractor.
Here is a good article out on the SBA website that presents the distinctions between an Independent Contractor and an Employee, and some of the pros and cons of the 2 different relationships types.
http://www.sba.gov/content/independent-contractors-vs-employees
The best way for both sides in a contract situation to avoid these kinds of issues and the wrath of the IRS is for the Independent Contractor to have a Company (like an LLC) that the employer contracts with, rather than hiring the Independent Contractor as an individual on a 1099 basis.
That by itself doesn't eliminate all the issues, but if done properly, it does take some of the steam out of the argument. The Independent Contractor is an employee of the LLC and is thus paying all their payroll taxes and Unemployment insurance, which is what the IRS is really concerned about to begin with; making sure they aren't loosing tax revenue.
What has been your experience? Have you had any issues with the IRS?
Post a comment below, I'd love to have a discussion with you.
Paul Monax
Independent Contracting Resources
http://www.IndependentContractingResources.com/
I am a Mentor for Independent Contractors to help you with the Business Side of your Business.
I have been a small business owner of a number of businesses over the past 11 years.
For the past 6+ years have been as the owner of a small Independent Contracting business specializing in custom software development for large enterprise systems.
Because Being Independent Doesn't Mean You Have To Do It All Alone!