Although the economic outlook continues to improve, many employers remain hesitant about adding permanent staff. As a hedge against the expense of benefits such as health insurance for full-time employees, and the cost and administrative burden of withholding for payroll and income taxes, employers may consider engaging independent contractors. The use of independent contractors may indeed reduce labor costs, but it is not without risk. Substantial penalties may result if a classification is disallowed by the IRS. At a minimum, the employer will be responsible for paying the employer’s and the employee’s share of FICA, FUTA and income taxes. The IRS currently uses a list of 20 questions to determine whether an individual is an employee or an independent contractor. A “yes” answer to even one question may mean that an individual may not be classified as an independent contractor. Proceed with caution. For more detail on the IRS checklist, click on the link to the left under “Find Out More”.
See the list of 20 questions used by the IRS to determine whether an individual is correctly classified. Click here to read more.