INDEPENDENT CONTRACTOR OR EMPLOYEE?

 

Classification Checklist

 

Worker classification has become an area of focus for the IRS and, with its potential liability being considerable, your company should ensure that workers are properly classified. An incorrect classification can lead to significant interest and penalties and can also cause costly problems with your benefit plans. Proper classification can make a significant difference in the amount of employment tax that your company pays.

 

Below is a checklist that can provide some guidance in collecting and analyzing the relevant information for worker classification.

 

Classification Checklist

 

Workers are more likely to be classified as independent contractors if they:

 

• Make a significant investment in business property (a home computer is not significant);
• Pay their own business expenses;
• Receive a flat fee that is not based on an hourly or similar rate;
• Are not prohibited from doing work for other companies;
• Can pay subcontractors to get the job done;
• Are not performing services as an integral part of your regular business;
• Have a contract with an enforceable liquidated damages provision;
• Can make a profit or suffer a loss.

 

Workers are more likely to be classified as employees if they:

 

• Are given specific instructions and on-going training in how to get the work done;
• Cannot work for others;
• Have expenses paid by your company;
• Are paid with a salary or hourly wage;
• Do not have significant investment in their trade or business;
• Are an integral part of your regular business;
• Receive direct reimbursement for all, or almost all, expenses.

 

Less important is:

 

• Whether or not the work is performed on the business’s premises;
• Whether the worker has flexibility in setting hours;
• Whether the relationship is temporary or short term;
• Whether the work is full – or part-time;
• Whether the worker performs services for one or more businesses.

 

In accordance with IRS rules, we hereby advise you that any tax advice contained in this correspondence or attachments is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service. 

 

For more information, please contact Sno Barry at 207-991-5191 or Lee   Chick at 207-942-1600.