Determining whether or not an individual is an independent contractor or an employee is very important in terms of taxes required to be paid and forms to be filed for the individual as well as the company doing the hiring. In fact, if a company incorrectly identifies an employee as an individual contractor it could face large penalties for items such as not paying employee withholding taxes, making payments late and/or not filing the appropriate tax forms throughout the year. The following are some guidelines for determining which category a hired individual falls under:
- Company can direct or control how individual gets his or her work accomplished
- Company has control over financial and business aspects of the individual’s job
- Employee typically only works for one company
- Company has control over final result of work accomplished, but little to no control regarding how the individual accomplishes the final result
- Company cannot control the financial and business aspects of the individual’s job
- Typically hired by more than one company
Click this link to see an article from the IRS on the subject.