Horror Story....I paid my employee’s as contractor’s

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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