Is Your Staff Classified Properly?

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The Employee VS. Independent Contractor Debate

The classification of personnel affects how much a business pays in taxes, if withholding from paychecks is necessary and what tax documents to file. Misclassification of an employee can result in penalties and additional taxes. There are many questions to ask in determining the classification of personnel. There are three main categories the IRS uses in determining the classification. They are listed below in bold:

Behavioral Control:

The first question to ask in determining classification: Does the company control what the worker does and the manner in which he or she does their job? For example, do you set the hours the worker works? Do you set the work location? Do you provide all of the resources and materials? Do you provide training? If you can control what is done and how it is done then your workers are probably employees. If you can control only the outcome of the work and not the method of reaching the outcome then your workers are probably independent contractors. However, there are other factors involved in determining classification.

Financial Control:

Can the worker realize a profit or loss? Meaning, does the employer provide the work location and all resources to perform the job. If so, then there is no profit or loss to be realized. If these items are not provided then there is a profit or loss. This will usually mean the worker is classified as an independent contractor. How do you pay the worker? If you pay a flat set fee the worker is probably an independent contractor. If you pay for a period of time, such as hourly or weekly the worker is probably an employee. Does the worker provide services to other businesses? If so, they are probably an independent contractor.

Type of Relationship of the Parties:

What is the underlying nature of the relationship? Sometimes a written contract is necessary to prove this. Does the business provide the worker with benefits, such as insurance or vacation pay? An independent contractor does not receive these type of benefits from an employer. What is the length of time the relationship is expected to last? If it is indefinitely, the worker is most likely an employee. Are the worker’s duties an integral part of the operation? If so, they are probably an employee.

It is important to note, the worker must meet multiple rules before determining their classification.

As a business owner, if you would like to hire an independent contractor it is advisable to find one that is self-employed and pay them through their company. While this alone is not enough to determine classification it can help prove the nature of the relationship.

Copyright 2014 Christi Rains, Alpha Omega Consulting & Bookkeeping, LLC

SEEK PROFESSIONAL HELP BEFORE IT’S TOO LATE!

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Why is it important for finance and accounting functions to be handled by accounting professionals?

Accurate and current books are imperative to operational efficiency. If your business isn’t booking sales and payments on a regular basis then you will not know the current financial position of your company.  If you are not paying bills on time then you are not only paying late fees but are unable to take advantage of early pay discounts offered by some vendors. This also prevents companies from producing financial statements or short and long-term projections.   Continue reading

Financial Statements Explained

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Financial Statements 101

As a business owner, have you ever been asked to provide financial statements to a vendor, creditor or investor? Do you dread this question? Have you ever felt guilty because you don’t run routine financial statements? Maybe you feel uneasy to see the results. Don’t be. Regardless of what financial statements say about your company, they are your best resource at evaluating your strengths and weaknesses. It is through these statements that you can better plan; you can’t fix problems or prepare for the future without the right information.

It is important to remember the statement, ‘garbage in, garbage out’. Before you run financial statements, it is necessary that you confirm all information has been entered into your accounting system and that the information has been verified for accuracy.

Below, I have listed the three main types of financial statements. It is important to become familiar with the value that each report provides your business.  Continue reading

The Employee VS. Independent Contractor Debate

Standard

09b648b8dcef9fe46e0cbc962fafbef5

The Employee VS. Independent Contractor Debate

The classification of personnel affects how much a business pays in taxes, if withholding from paychecks is necessary and what tax documents to file. Misclassification of an employee can result in penalties and additional taxes. There are many questions to ask in determining the classification of personnel. There are three main categories the IRS uses in determining the classification. They are listed below in bold:

Behavioral Control:

The first question to ask in determining classification: Does the company control what the worker does and the manner in which he or she does their job? For example, do you set the hours the worker works? Do you set the work location? Do you provide all of the resources and materials? Do you provide training? If you can control what is done and how it is done then your workers are probably employees. If you can control only the outcome of the work and not the method of reaching the outcome then your workers are probably independent contractors. However, there are other factors involved in determining classification.

Continue reading