---

Guest post by: Anthony Kelly Become an Author

Tweet

---

---

Employers are faced with many challenges including determining what category the people they hire fall into. Workers are divided by the IRS into four categories: independent contractors, common-law employees, statutory employees, and statutory nonemployees. Independent contractors are considered to be self-employed. People who work for a business that assigns jobs but gives them independence in carrying out the work are independent contractors. In contrast, common-law employees are subject to greater control by the employer; the business determines what and how tasks will be undertaken. Independent contractors have control over their methods and the means by which they complete an assignment while common-law employees are not able to take the same liberties.

Under common law rules, independent contractors may be treated as statutory employees for IRS purposes under certain conditions. If you hire a person that is a driver who distributes or delivers certain foods and beverages, is an agent, or is paid on commission; sells life insurance or annuity contracts for your company; works from home to produce goods based off of specific directions provided by your company; or is a salesperson selling goods for resale or use in the buyer's business operation, they may be considered a statutory employee. However, there are other stipulations that must be met. The worker must perform all services personally, lack an investment in the equipment and property used, and continually perform the services for the same employer. Lastly, a statutory nonemployee is a direct seller or real estate agent who is compensated based off of output and whose contract states they will not be treated as an employee.

How do you categorize your workers?

The IRS considers several factors when determining which category a worker falls into, including behavioral control, financial control, and the type of relationship. Behavior control refers to what extent the business controls how work is completed, financial control refers to what extent the business controls the financial aspects of the worker's job, and the type of relationship refers to how the relationship is seen by the workers and the business owner (are there written contracts or benefits?).

When you are determining if a worker is an employee, independent contractor, statutory employee, or statutory nonemployee, you must document the above factors used to determine your worker's categorization. The relationship is considered holistically; that is, instead of focusing on one specific factor, you should look at the entire relationship with the worker. If uncertainties arise, you or your workers can file a form with the IRS for official determination.

Why should you care about categorizing?

It is important to make the distinction between the different types of workers because they are treated differently by the IRS. For example, statutory nonemployees are considered self-employed for IRS purposes while common-law employees are not. In other words, different forms and taxes must be filed for different types of workers. Failure to properly do so can lead to penalties imposed by the Federal government. Thus, although determining which category a newly hired worker falls into may seem trivial, it is, nonetheless, very important financially.

Confused?

The rules on categorizing a new hire can seem overwhelming, especially when you are trying to avoid penalties. Fortunately, Professional Employer Organizations (PEOs) specialize* in tax laws and how they pertain to independent contractors and employees. It can be beneficial to investigate PEOs so that you can save the time and hassle of research and paperwork.

Related Articles

  Search Engine Optimization SEO Tip of the day: Using Styling Tags
  Determining if a Business Plan or Regulation D PPM is your best option.
  Numbers Show Employment Franchises Won't Slow Down
  Home-based Business Idea: Writing Resume
  Public Relations: The Long -Term View
  7.5.5 Vocationalising the school curriculum: Institutional design and capacity building
  Bench Strength - The Key to Replacing Salespeople
  How to Take Action on an Employment Background Check
  The Trouble with Pay for Placement
  “The Top Ten Public Relations Errors That Are Hazardous To The Health Of Your Media Relations”
  The Key to Better Websites
  Follow the Leader, a Web Design Philosophy
  6 Steps For Managing Your Search Marketing Campaign
  ••••••>Search Engine Optimization SEO Tip of the day: Using Styling Tags
  I Dont Want PR I Just Want To Be Successful
  5.13 Gender: Working Out of Poverty
  The Differences Between Federal and California Labor Laws
  The Value of EPL Insurance to Protect Your Business Against Employment Lawsuits
  Data Recovery Software: How It Works
  Is It Possible To Find Home Based Jobs Through An Employment Agency?

Related Forum Posts

Any experience with McManus UK Ltd.?
Something to laugh
Re: Are Economic Recessions Good for Franchising?
Re: Internet Marketing Dashboard for Business Owners

Share this article. Fund someone's dream.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

3 Popular Niche Marketing Misconceptions

SEO and the Entrepreneur

Leading with Discernment

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.