Are Your Workers Contractors or Staffers? How to Properly Classify Your Staff

Mar 28, 2011

BusinessNewsDaily contributor Patrick Egan offered small business owners advice on how to properly classify their workers as either contractors or employees in a recent article.

“These days, tens of millions of workers exist as independent contractors rather than as employees,” he wrote. “They pay their own taxes and secure health insurance independently. But in many cases, they shouldn’t have to.”

Using contractors can save a business money in taxes and insurance, but some companies may be misclassifying these workers-and could be opening themselves up to various consequences.

“Penalties are so high,” Joy Child, a tax partner with Alexander, Aronson, Finning & Co. in Westborough, Massachusetts, told Egan, explaining that a company wrongly treating its workforce as independent could be liable for payroll taxes, interest and penalties.

Child added that the IRS and state governments look for clues that a company might be shirking its responsibility.

“If there were lots of 1099s issued and very little payroll, that would indicate that there might be a problem,” she told Egan.

How do you know if you’re properly classifying your contract workers?

Egan suggests looking at whether you or the contractor have control over how the work is done, whose equipment is being used, how the contractor is being compensated, if you’re providing special training for the contractor, if the contractor operates their own business, and if you and the contractor have signed a work-for-hire contract.

To read the complete BusinessNewsDaily article, click here.