If you hire someone for a long-term, full-time project or a series of projects that are likely to last for an extended period, you must pay special attention to the difference between independent contractors and employees.

Why It Matters

The Internal Revenue Service and state regulators scrutinize the distinction between employees and independent contractors because many business owners try to categorize as many of their workers as possible as independent contractors rather than as employees. They do this because independent contractors are not covered by unemployment and workers’ compensation, or by federal and state wage, hour, anti-discrimination, and labor laws. In addition, businesses do not have to pay federal payroll taxes on amounts paid to independent contractors.

The Difference Between Employees and Independent Contractors

Independent Contractors are individuals who contract with a business to perform a specific project or set of projects. You, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

Example: Sam Smith, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. He is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if he works more or less than 400 hours to complete the work, Sam will receive $6,400. He also performs additional electrical installations under contracts with other companies that he obtained through advertisements. Sam Smith is an independent contractor.

Employees provide work in an ongoing, structured basis. In general, anyone who performs services for you is your employee if you can control what will be done and how it will be done. A worker is still considered an employee even when you give them freedom of action. What matters is that you have the right to control the details of how the services are performed.

Example: Sally Jones is a salesperson employed on a full-time basis by Rob Robinson, an auto dealer. She works 6 days a week, and is on duty in Rob’s showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager’s approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Rob. Rob also pays the cost of health insurance and group term life insurance for Sally. Sally Jones is an employee of Rob Robinson.

Independent Contractor Qualification Checklist

• The IRS, workers’ compensation boards, unemployment compensation boards, federal agencies, and even courts all have slightly different definitions of what an independent contractor is, though their means of categorizing workers as independent contractors are similar.
• One of the most prevalent approaches used to categorize a worker as either an employee or independent contractor is the analysis created by the IRS. The IRS considers the following:
• What instructions the employer gives the worker about when, where, and how to work. The more specific the instructions and the more control exercised, the more likely the worker will be considered an employee.
• What training the employer gives the worker. Independent contractors generally do not receive training from an employer.
• The extent to which the worker has business expenses that are not reimbursed. Independent contractors are more likely to have unreimbursed expenses.
• The extent of the worker’s investment in the worker’s own business. Independent contractors typically invest their own money in equipment or facilities.
• The extent to which the worker makes services available to other employers. Independent contractors are more likely to make their services available to other employers.
• How the business pays the worker. An employee is generally paid by the hour, week, or month. An independent contractor is usually paid by the job.
• The extent to which the worker can make a profit or incur a loss. An independent contractor can make a profit or loss, but an employee does not.
• Whether there are written contracts describing the relationship the parties intended to create. Independent contractors generally sign written contracts stating that they are independent contractors and setting forth the terms of their employment.
• Whether the business provides the worker with employee benefits, such as insurance, a pension plan, vacation pay, or sick pay. Independent contractors generally do not get benefits.
• The terms of the working relationship. An employee generally is employed at will (meaning the relationship can be terminated by either party at any time). An independent contractor is usually hired for a set period.
• Whether the worker’s services are a key aspect of the company’s regular business. If the services are necessary for regular business activity, it is more likely that the employer has the right to direct and control the worker’s activities. The more control an employer exerts over a worker, the more likely it is that the worker will be considered an employee.

Minimize the Risk of Misclassification

If you misclassify an employee as an independent contractor, you may end up before a state taxing authority or the IRS.

Sometimes the issue comes up when a terminated worker files for unemployment benefits and it’s unclear whether the worker was an independent contractor or employee. The filing can trigger state or federal investigations that can cost many thousands of dollars to defend, even if you successfully fight the challenge.

There are ways to reduce the risk of an investigation or challenge by a state or federal authority. At a minimum, you should:

• Familiarize yourself with the rules. Ignorance of the rules is not a legitimate defense. Knowledge of the rules will allow you to structure and carefully manage your relationships with your workers to minimize risk.

• Document relationships with your workers and vendors. Although it won’t always save you, it helps to have a written contract stating the terms of employment.

Legare, Bailey and Hinske, LLC is a CPA firm located in Charleston, South Carolina.

Clorox vs. Peroxide VERY interesting and inexpensive. This was
written by Becky Ransey of Indiana (a doctor’s wife), and I want to share it
with you. She was over recently for coffee and smelled the bleach I was using
to clean my toilet and counter tops. This is what she told me. ‘I would like
to tell you of the benefits of that Plain little ole bottle of 3% peroxide
you can get for under $1.00 at any drug store. What does bleach cost? My
husband has been in the medical field for over 36 years, and most doctors don’t
tell you about peroxide. Have you ever smelled bleach in a doctor’s office?
NO!!!

Why? Because it smells, and it is not healthy! Ask the nurses who
work in the doctor’s offices, and ask them if they use bleach at home. They
are wiser and know better!

Did you also know bleach was invented in the late 40′s? It’s chlorine,
folks! And it was used to kill our Troops. Peroxide was invented
during WWI in the 20′s. It was used to save and help cleanse the needs of our
troops and hospitals.

Please think about this:

1. Take one capful (the little white cap that comes with the bottle)
and hold in your mouth for 10 minutes daily, then spit it out. (I do it
when I bathe.) No more canker sores, and your teeth will be whiter without
expensive pastes. Use it instead of mouthwash.

2. Let your toothbrushes soak in a cup of peroxide to keep them free
of germs.

3. Clean your counters and table tops with peroxide to kill germs and
leave a fresh smell. Simply put a little on your dishrag when you wipe, or
spray it on the counters.

4. After rinsing off your wooden cutting board, pour peroxide on it
to kill salmonella and other bacteria.

5. I had fungus on my feet for years until I sprayed a 50/50 mixture
of peroxide and water on them (especially the toes) every night and let
dry.

6. Soak any infections or cuts in 3% peroxide for five to ten minutes
several times a day. My husband has seen gangrene that would not heal
with any medicine but was healed by soaking in peroxide.

7. Fill a spray bottle with a 50/50 mixture of peroxide and water and
keep it in every bathroom to disinfect without harming your septic system
like bleach or most other Disinfectants will.

8. Tilt your head back and spray into nostrils with your 50/50 mixture
whenever you have a cold, plugged sinus. It will bubble and help to
kill the bacteria. Hold for a few minutes, and then blow your nose into a
tissue.

9. If you have a terrible toothache and cannot get to a dentist right
away, put a capful of 3% peroxide into your mouth and hold it for ten
minutes several times a day. The pain will lessen greatly.

10. And of course, if you like a natural look to your hair, spray the
50/50 solution on your wet hair after a shower and comb it through. You
will not have the peroxide-burnt blonde hair like the hair dye packages but
more natural highlights if your hair is a light brown, reddish, or dirty
blonde. It also lightens gradually, so it’s not a drastic change.

11. Put half a bottle of peroxide in your bath to help get rid of
boils, fungus, or other skin infections.

12. You can also add a cup of peroxide instead of bleach to a load of
whites in your laundry to whiten them. If there is blood on clothing, pour it
directly on the soiled spot. Let it sit for a minute, then rub it and
rinse with cold water. Repeat if necessary.

13. I use peroxide to clean my mirrors. There is no smearing, which
is why I love it so much for this.

14. Another place it’s great is in the bathroom, if someone has been
careless & has peed on the floor around the toilet & it’s begun to
smell of urine. Just put some peroxide in a spray bottle & spray. In the blink
of any eye all the smell will be gone & the bacteria eliminated!

I could go on and on. It is a little brown bottle no home should be
without! With prices of most necessities rising, I’m glad there’s a way to
save tons of money in such a simple, healthy manner!

This information really woke me up. I hope you gain something from
it, too.