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.
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.