There are three basic rules that the IRS uses to determine which category the people that are doing work for you fall into.
- Behavioral Control – Do you give them a high degree of instructions? Do you have evaluations on their performance? Is there training to show them how you want the work completed?
- Financial Control – Do you control how they get paid? Do you provide the tools or supplies to complete the work? Are you responsible for their pay raises?
- Type of Relationship – Do you have the right to control or direct not only what is to be done, but also how it is to be done?
You don’t want find out after an audit that you owe a lot of back taxes for classifying contractors incorrectly. By staying up to date with the government’s contractor classification guidelines and making sure your contractors actually fall within them, you can save yourself a lot of money and stress. This can be a tricky topic and there are fine lines for defining contractors versus employees, download our quick guide to help.