New and old business owners alike have met with this
struggle at some point in their entrepreneurial journey. Your business is
thriving and you need help! You decide to hire one person. Excited at the new
relief and separation of duties, you bring the candidate of your dreams in to
duplicate yourself (insert mass exaggeration).
The time has come to issue their first paycheck. After realizing that
you have to pay additional taxes and worker’s compensation to employ this
person, you revert to paying them as a contractor. “Ok” you think, “this will save some money
and still get the job done”. You’re living the dream for two years when
suddenly, you receive a certified letter from the IRS. You are being audited!
Let’s transgress into a real life story. This happened to a previous client of
mine. In this case, they had 17 people
working as contractor’s when really, they were employee’s. After a 30 day debate, the IRS hit my client
with a $45,000 bill. This was to pay back employment taxes! Including penalties
and interest for not filing the appropriate forms, or withholding or paying the
employment taxes. Terrifying story, but true.
Here are 2 questions that will help you decide whether your helper is an
employee or an independent contractor.
Does the person use your equipment?
If the answer is yes, this person is an employee. If the answer is no, well then you have a
contractor. A contractor should be paid
straight pay meaning, you do not withhold taxes, nor do you carry the tax
burden for them. If you own a trucking company and this person is driving your
trucks, without paying a lease for using the truck, this person is an
employee. On the opposite end, you have
a driver with his own truck, paying for his fuel and insurance. This person is
a contractor.
Do you tell this person when to report, or ask them when they are
available?
A contractor in most cases has the freedom to give you’re
their work schedule. They can tell you
when they will be, and when they can’t make it in. An employee has a set schedule (determined by
the employer) and must request time off if they are planning a vacation, a
personal day, or have doctor appointments.
In the event of an audit, an auditor will sit down with your worker’s
and ask them these types of questions.
If you have any questions or want to know more about whether
you should hire an employee or a contractor, give us a call or shoot us an
email!
As always….Make It Count!
614-859-2073
makeitcountbks@gmail.com
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