The classification you use for your new workers has a significant impact on both your business and your responsibilities to your workers and the IRS.
THE BIG PICTURE:
Workers can be classified either as employees or independent contractors, and there are important distinctions between the two.
- The IRS defines an employee as an individual who is under an organization’s control as to what work is to be done and how it is done.
- Any worker who doesn’t meet this definition is generally considered an independent contractor.
WHAT IT MEANS:
The key to determining employee status is how much control you intend to exert over them.
- If you provide strict requirements for dress code, working hours, and direct oversight and management of job functions, for instance, your workers should be classified as employees.
- If your workers instead are only given general direction and general standards to abide by, they should be classified as independent contractors.
FORMALITIES MATTER:
Keep separate independent contractor and employee agreements on hand to formalize each classification in your workforce.
WHY IT MATTERS:
Properly classifying your workers will help avoid potential issues with the IRS regarding how their wages are withheld and remitted.
- Encourage your independent contractors to form business entities for themselves to reinforce their status.
- Florida also requires companies to have workers’ compensation insurance once an employee number threshold is met, and requires that unemployment insurance be paid for employees.
- Failure to properly classify your workers and pay the required fees for employees to the government can result in heavy penalties.
