What a business may not realize, however, is that the title of the worker doesn’t ultimately determine whether the worker is actually an employee or an independent contractor—thereby obligating the employer to possibly pay withholding income, Social Security, Medicare and unemployment taxes on wages paid to the employee, and pay other applicable state and federal employee taxes.
We help clients understand and navigate the nuances between employees and independent contractors. By definition, an independent contractor is self-employed, while the employee is employed by the employer or business. Whether or not a worker should be classified as an employee or independent contractor, and therefore covered by a specific employment law or regulation, comes down to the definition of employee, which is not clearly or easily defined by either the federal government or state governments.
The IRS has set out a complex 20-factor balancing test, which many states use or have adopted, in an attempt to help employers know if they have accurately and correctly classified a worker. However, generally a person will be considered an employee if:
(1) the company controls what and how the worker does his or her job,
(2) the business aspects of the worker’s job are controlled by the company, such as providing equipment or reimbursing expenses,
(3) the work performed is a key aspect of the company’s business, and
(4) if employee-type benefits provided to the worker.
Our employment attorneys look at the entire business relationship and help you determine the worker’s classification. Call us today to help determine if you have properly classified your workers.