Contractors vs. Employees

Do you use contractors in your business? If so, you will need to be more careful than ever before in how you report these expenses. Increased awareness and severe budget pressure from government agencies has led to more rigorous auditing by the Bureau of Workers’ Compensation and the Ohio Department of Jobs and Family Services over the last couple of years.

Whether you classify your workers as employees or contractors affects the amounts you are required to pay in taxes, whether you need to withhold from their paychecks, and what documents you need to file.

The IRS uses three basic ways to distinguish the relationship between businesses and their workers. If you have behavioral control, meaning that you direct how the work is accomplished, then you most likely have an employee. Having financial control of an employee allows you to direct the financial and business aspects of the job. How the workers and the business owners perceive their relationship impacts the type of relationship, also.

You can get some clarification on determining how you should classify your workers through several publications available from the IRS, including Publication 1779, Independent Contractor or Employee. If you are not sure how you should classify your workers, ask your Warnick consultant for help in finding the correct resolution to avoid liability for unforeseen tax bills and penalties.