Employee vs Independent Contractor – Part 2

by | Jun 21, 2012 | IRS

In Part One, we reviewed the Common Law Rules and evidence for determining if a person providing services is an employee or an independent contractor.

Let’s look at the most common forms and documentation you might run into:

Form SS-8

After reviewing the three categories of evidence, if you are still unsure if a worker is an employee or an independent contractor, the business can file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF) with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker?s status.

Be aware that it can take up to six months to get a determination, but a business that continually hires the same types of workers to perform particular services may want to consider filing the Form SS-8 (PDF).

Plan B: Complete For Your Records Only

Instead of sending this form to the IRS and then waiting six months to hear back, it’s not uncommon for people to complete the Form SS-8 as a way to facilitate a conversation between the employer and the worker, and help both parties decide how to most appropriately classify the worker.

Form 8919

If you feel that you should have been paid as an employee versus a contractor, there is a second option available to you. You can complete and attach a Form 8919 to your federal tax return. You should be aware that submitting a Form 8919 with your taxes will most likely cause the IRS to contact your employer. According to the instructions:

Purpose of form:

Use Form 8919 to figure and report your share of the uncollected social security and Medicare taxes due on your compensation if you were an employee but were treated as an independent contractor by your employer. By filing this form, your social security and Medicare taxes will be credited to your social security record. For an explanation of the difference between an independent contractor and an employee, see Pub. 1779, Independent Contractor or Employee

Employee vs Independent Contractor – Part 1

by | Jun 19, 2012 | Uncategorized

Wondering if you should be classified as an employee or an independent contractor? Or, do you have someone working for you, and you’re not sure how that person should be classified? Well, believe it or not, the IRS has a form for that.

According to our friends at the IRS:

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

Common Law Rules:

Facts that provide evidence of the degree of control and independence fall into three categories:

  1. Behavioral – Does the company control or have the right to control what the worker does and how the worker does his or her job?
  2. Financial – Are the business aspects of the worker?s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  3. Type of Relationship – Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)?? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no ?magic? or set number of factors that ?makes? the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

In Part Two, we’ll look at the documentation and IRS Forms you may need to complete.