Are They Your Employee or a Contractor?
Mar 06, 2023Let's talk about relationships - business relationships, to be specific. As your business grows, you will inevitably need to bring in additional help, whether in the form of employees or contractors. Although it can be somewhat of a gray area, it's crucial to accurately categorize the individuals who work for you.
While hiring contractors may offer more tax advantages, there has been a rise in the overuse of this classification, which has prompted the IRS to take a closer look. It may seem trivial, but the IRS wants to ensure that you are correctly classifying your workforce, and paying the appropriate taxes too! That's why it's essential to ensure that you are classifying your employees and contractors correctly, and documenting the reasoning behind your decisions.
In this episode, you will learn the following:
1. What are the differences between employees and contractors?
2. How do you distinguish between an employee and a contractor relationship?
3. What happens if you misclassify a contractor as an employee?
What you'll hear in this episode:
- What are the essential services that drive your business?
- Employees are paid through payroll, and the employer is responsible for withholding their taxes through payroll.
- The types of control that you need to have for each of these workers.
- What service are they providing and how does that relate to your overall service offering?
- Home Improvement Contractors vs. CFOs.
- What will happen as you start building these relationships?
- Why it’s important to document.
Here are some brief snippets from this episode:
[00:02:47]
If you have employees, they're typically assumed to have a long term relationship with you. Most of the time, the more advantageous strategy is to call someone a contractor. It can still be really tough to classify someone properly in your business.
[00:10:36]
Are you giving a lot of direction to your contractor to the point where you're basically directing everything that they do? Document your process to arrive at your conclusion. There are about 30 factors, but they're not treated equal. One can really sway you.
Related episodes:
Tax Tips for Short Term Rental Owners with Ryan Bakke
Why Your Tax Pro Says No to Creative Strategies
Five Key Financial Building Blocks for Your Business
Resources:
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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.
