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What's In A Name? Sometimes, A Lot
By Jerry Kalish
You can call them independent contractors and pay them as such. But they may actually be employees. Deciding how you classify your workers--and doing it correctly--is never more timely than right now, as many retirement plans (and health insurance plans) have January 1st employee enrollments. It’s critical that workers be treated correctly for tax compliance purposes.
In essence, if someone is an employee, then the employer must withhold income tax, withhold and pay Social Security and Medicare taxes, and pay unemployment tax. In addition, the employee may be eligible and have to be included in benefit plans. However, the employer generally does not have any of these obligations for an independent contractor.
The problem is that both penalties and interest can pile up if someone is incorrectly treated as an independent contractor. In the case of a retirement plan, the employer who has misclassified an employee as an independent contractor will eventually be required to make up the benefits the individual would have received as an employee. That can end up being quite expensive.
Whether an individual is an independent contractor or an employee is a factual matter based on the extent of behavioral control, financial control, and relationship of the parties. The IRS publication Independent Contractor (Self-Employed) or Employee? provides an explanation.
And if in doubt--any doubt--seek guidance from your certified public accountant or attorney. This is one of those "kids, don't try this at home" situations.
Comments (0)November 25, 2008 10:11 AM
