And Why It Needs To Be Done Correctly
Classifying workers correctly means that you must understand whether they are employees or just independent contractors. It is useful if you do not run afoul of the law when it comes to state and federal employment tax. Also, it means that it can help you determine whether you are adhering to the FLSA (Fair Labor Standards Act) in regards to an individual worker.
How to determine whether service providers are independent contractors or employees
Are these individuals offering crucial or critical services to your small business? If yes, then you have to pay taxes on all their earnings for work rendered. However, if they are independent contractors, in most instances, you do not have to. Furthermore, you might have extra obligations to your employees that would not apply if the workers were independent contractors.
Of great importance is to clearly understand how the IRS compares an employee to an independent contractor. Since there are different employee classifications which you should know about, it is prudent to talk to a small business attorney NYC if you’re unsure of the categories, which they fall into.
When to classify your worker as an independent contractor
According to the IRS, a worker is an independent contractor if you can direct or control only the result of his or her work but not how he or she will handle the job. Use the following three criteria to establish whether the worker is an independent contractor or an employee:
- Type of relationship – Are there employee type benefits or written contracts? Is the work to be performed a vital aspect of your business?
- Financial – Do you control the business aspects of the worker’s job?
- Behavioral – Does your business have the control on how the worker conducts her or his job?
Have you tried to apply the above test questions to the specific situation you’re facing but are still unsure of how to categorize your workers? If yes, then there’s an IRS form, which you can submit. That form will enable the IRS to review the categories on your behalf.
After the IRS has set the status of the worker(s), it becomes official. Therefore, it’s highly prudent to request a NYC small business attorney to review the form for you prior to submitting it to the IRS. That will go a long way in making sure that you get the right classification of whether your worker is an independent contractor or an employee.
What you need to Know about Fair Labor Standards Act
A good number of business owners are aware of the basic differences between employees and contractors in reference to paying Federal and State employment taxes. However, not many of them realize that classification of an employee has a huge impact on their legal obligations under Fair Labor Standards Act.
If you have workers performing work for you, it’s highly essential that you understand clearly if you owe them minimum wage. Are you looking for an easy way of being exempt from FLSA rules? Well, the best way is to ensure that you categorize your worker as an independent contractor, to avoid falling into the wrong side of the IRS.