Employees vs Independent Contractors

Maintain Employees vs Independent Contractors

You must correctly classify your workers as either employees (“W2” wage earner) or independent contractors (“1099” self-employed individual). As a business owner, you must understand the IRS guidelines regarding the classification of workers.

Common mistakes business owners make in classifying and paying workers:

  • You hire a worker on a temporary basis and pay her as a contractor because it’s not a permanent position.
  • The worker walks off the job or you let him go after only a few days and pay him as a contractor because he didn’t work a full pay period.
  • The worker asks you to pay her cash because a paycheck will interfere with benefits she may be receiving from the government.
  • You give employees bonuses without running the compensation through payroll.
  • You pay a worker a salary as a W2 wage and a sales commission as an independent contractor.

The following IRS links explain when you must pay a worker as an employee or an independent contractor.  It’s imperative you read this information and read and follow all links contained on this web page.

Here is an IRS video regarding the voluntary reclassification options you have if you have been misclassifying workers.

 

Here is a video by the US Department of Labor regarding misclassification of workers.