Independent Contractors – 1099 vs. W2

Today’s employers are classifying more and more workers as independent contractors instead of employees. Small business owners in particular need to research this decision carefully, and take steps to make sure you are complying with all tax rules and regulations. The IRS expects you to know the difference between employees and independent contractors and there are penalties for incorrectly classifying your workers.

The IRS offers small business owners resources you can use to determine whether or not a worker can be classified as an independent contractor It is suggested that you answer a series of questions about the level of control you have over the workers in question. The more control you have over your workers, the less likely it is that they can be considered independent contractors. Here are a few examples:

  • Who controls the method and hours of doing the work?
  • Does the worker furnish his owns tools and hire his own subcontractors?
  • Who sets the rate of compensation?
  • Does the individual solely work for you or does he do piecemeal work for other businesses?
  • Do you receive an invoice for services from the worker?

If you do have an independent contractor, this should be correctly reflected in any contracts and agreements between the parties. For more information on this subject you can reference this IRS publication http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee. You should also consult with a local business attorney or an accountant to verify 1099 compliance.

Clement Law Firm, Asheville, NC -- http://www.eclementlaw.com-- 828-281-8160

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