You may employ hundreds, if not thousands of employees. Or maybe you only employ three to five. Regardless of the number of employees you have, the way you classify your workers is important to the federal government. Worker status is a hot button issue at the Internal Revenue Service (IRS), and Ohio Job and Family Services, Ohio Bureau of Workers’ Compensation and the U.S. Department of Labor are also challenging the way businesses report their payments to “independent contractors.”
The courts have considered many facts in deciding whether a worker is an independent contractor or an employee. Three main categories are behavior control, financial control and relations.
How To Determine Worker Classification
Facts that determine the degree of control and independence fall into these three categories:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay)? Will the relationship continue and is the work performed a key aspect of the business?
It’s critical for you to weigh all these factors when determining whether a worker is an employee or independent contractor. You should focus on the entire relationship, consider the degree or extent of the right to direct and control, and finally document each of the factors used in coming up with the determination.
Simply having a contract stating that the worker is an independent contractor isn’t going to cut it.
Ohio Employment Tax Help
If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker, as well as interest and penalty. If you need help evaluating whether you’re compliant with the law, contact Rea & Associates. Our team of Ohio tax professionals can help you evaluate if your independent contractors are indeed employees. Don’t get caught with unexpected tax liabilities or penalties.