The Info to Know on Independent Contractors

Do you have independent contractors working for you? If you're a small business, the answer is probably yes. And therefore, you probably already know that the classification of a worker as an independent contractor or an employee is dicey business.

But in case you missed the article in Business Week last week, it looks like it's about to become even more of an issue as the IRS and state agencies across the country are "redoubling" their efforts to crack down on businesses who have long-term workers that are misclassified under the Tax Code. It's true- employers can save as much as 30 percent on wages by avoiding payroll taxes, unemployment insurance, workers compensation coverage and benefits they provide to employees. And while independent contractors can play a vital role to you in building your team, now more than ever, you want to keep the distinction between these two concepts (independent contractor vs. employee) top of mind.

And as a sidenote- is it just us or does it seem that at the same time that everyone is hailing small business as a powerful engine to stimulate our economy, the regulatory environment surrounding small business seems to be tightening. From raising the accreditation thresholds for angel investors to employment issues-- what gives?!

Okay, back to the topic at hand. We're not about to give you legal advice on this one-- that's why you pay your lawyer the big bucks. But we will note that the distinction between independent contractors and employees turns on the notions of "independence" and "control," or how much you directly manage the manner and method that work is completed.

The IRS website talks about three categories of facts that provide evidence of independence and control-- behavioral, financial and type of relationship. And as each working arrangement is different, there's no magic set of facts. Instead, determinations are made by looking at the totality of circumstances.

So what does this mean for you? The bottom line is this-- independent contractors are valuable and play an important role in business. But like many, employment situations, the relationship is not without regulation and needs to be managed carefully. So take a minute, digest this blog post, review the IRS website and Resources page, and then get back at it.