Independent
contractors are individuals who are in business for themselves
and hire out their labor to clients. Often, business owners prefer
to hire independent contractors rather than maintain employees because
of the contractor's unique advantages. By hiring an independent
contractor, the small business owner does not have to pay the employer's
portion of the Social Security tax, unemployment taxes, workers'
compensation insurance premiums, or employee benefits - thereby
saving 30% or more in employee costs.
Employers are cautioned to be extremely careful not to misclassify
a worker as an independent contractor. Such misclassification can
lead to the employer being held responsible for uncollected income
taxes, Social Security taxes, unemployment taxes, and penalties
for not having adequate workers' compensation coverage.
Different federal and state government agencies have different
ways of assessing whether a worker is an employee or an independent
contractor. Among those agencies are the IRS, the U.S. Department
of Labor, state taxing authorities, and state unemployment and workers'
compensation agencies. One commonly recognized assessment is the
IRS'
20 factor test.
Download
the current IRS Publication 1779 covering this issue
Download
IRS Form SS8 to submit to the IRS for a determination ruling
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