Worker Classification and Why it Matters

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Worker Classification and Why it Matters

Employee or Private Contractor
The IRS uses specific criteria to decide if a worker should be classified as an employee or a private contractor. Key factors in your consideration may include, but are not limited to, the following:

  1. Behavioral Control:
    • Does the worker follow specific instructions and guidelines?
    • Is the worker provided with training or guidance on how to perform tasks?
  2. Financial Control:
    • Does the worker have a significant financial investment in their work tools or equipment?
    • Is the worker responsible for business expenses, such as insurance or licensing fees?
  3. Relationship:
    • Is there a written contract specifying the worker’s classification?
    • Does the worker receive employee benefits such as health insurance or retirement plans?

Why it Matters
Under scrutiny from taxing authorities, misclassification can lead to substantial penalties for unpaid and late payment employment taxes as well as additional costs to come into compliance. Familiarity with these guidelines can help shield against unnecessary exposure to tax and penalties.

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