Really Now, Does Your Special Employee Qualify As An Independent Contractor?
Probably not. One survey I read says that more than 50 percent of employers who pay someone as an independent contractor really should show that person as an employee. Is this a major problem? Yes, if you have a lot of people incorrectly classified. If a state or federal wage and hour audit reveals this as a problem, you will owe 15% for FICA/Medicare taxes, their withholding amounts, and maybe penalties and interest, for up to three years, or seven if the IRS feels there was fraudulent intent.
On the other hand, a properly classified independent contractor (IC) can be a real plus for a company, saving your money and fulfilling a specialty job that does not need a full-time employee on the books. So let’s see what the rules are to properly qualify an employee as an IC. I have used the rules here in New Hampshire, but they are very similar in all states and on the federal level.
- The person possesses or has applied for a federal employer identification number or social security number.
- The person has control and discretion over the means and manner of performance of the work, in that the result of the work, rather than the means or manner by which the work is performed, is the primary element bargained for by the employer.
- The person has control over the time when the work is performed, and the time of performance is not dictated by the employer. However, this shall not prohibit the employer from reaching an agreement with the person as to completion schedule, range of work hours, and maximum number of work hours to be provided by the person.
- The person hires and pays the person’s assistants, if any.
- The person holds himself out to be in business for himself or is registered with the state as a business and the person has continuing or recurring business liabilities and obligations.
- The person is responsible for satisfactory completion of work and may be held contractually responsible for failure to complete the work.
- The person is not required to work exclusively for the employer.
The classic case of a manufacturerer’s rep easily fits this description. On the other hand, if you have a mechanic installing store fronts for you exclusively and you control his day and his routine, it is doubtful that he qualifies as an IC.
Not sure? Run it by your accountant, or call your local glass industry consultant for a short review. Reach me at 603-242-3521. As a courtesy to USGlass subscribers, there is never a charge for a quick call like this.