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Independent Contractor Or Employee? Worker Classification Matters.

If you own a business, it is your legal obligation to properly classify your workers as either employees or independent contractors. It is important that the classification be done correctly to avoid problems with the IRS. The main purpose for classifying a worker is to determine the taxes and record-keeping for which your business will be responsible. If you fail to accurately report an employee, you may be held liable for past-due employment taxes. There are relief provisions in some circumstances.

The following information is intended to assist you in making the correct classification. If you need further information, give us a call at 651-319-5180.

Worker classifications — The IRS has four worker classifications:

  1. Contractor — When it comes to work completion, an independent contractor controls how the work is done. The employer or payer can only set a deadline and have control over the product or service itself.
  2. Employee — Companies control all basic aspects of employee work. That is, the employer dictates how, where and when the work is completed.
  3. Statutory employee — Sometimes independent contractors receive the same treatment as an employee. This is a statutory employee. Statutory employees must meet certain qualifications in order to obtain their status.
  4. Statutory nonemployee — The law considers workers certain workers to be nonemployees for federal tax reasons. These workers include real estate agents, direct sellers and some companion sitters such as private nurses.

Worker Classification Is Not Always Easy

There are options for you. If you wish, you may submit form SS-8 to the IRS, who will then determine the worker’s status. While you can download this online and do it yourself, it could protect your business in the long run to get the help of a business attorney. You may direct any related questions to Paul Overson of Coodin & Overson, PLLP. Call 651-319-5180 or email the firm.