Transcript When is a Worker an Employee and When is He an Independent

William and Sherri
Troutman with
Steven Brewer, CPA
 More
requirements for an employee. Tax
withholding, employer paid payroll taxes and
workers compensation insurance
 As independent contractor, company has little
or no obligation to worker after job done. Paid
for job only.
 Employee more costly. Usually costs 20% more
than just the gross hourly wage or commission
 “Hot Button” issue with IRS on audits. Can be
costly if not properly classified.
 Common
law definition
An employee is “anyone who
performs services for you and
you can control what will be
done and how it will be done”.
 If you control the details of
how the services are
performed then the worker is
an employee.

If you bring in a worker for your
business and you only have the right to
control or direct only the result of the
work and not what will be done and how
it will be done then in general the worker
is considered an independent contractor
Common
law looks at
3 factors in detail
• Behavioral
• Financial
• Type of Relationship
 Behavioral
• Type of Instructions
Given
• Degree of Instruction
• Evaluation System
• Training
 Financial
• Investment
• Unreimbursed Expenses
• Profit/Loss Opportunity
• Services Marketed to
Public
• Method of Payment
 Type
of Relationship
• Contracts
• Employee Benefits
• Permanency of
Relationship
• Service Key to
Business
Withholding of Taxes
 Employer Paid Payroll Based
Taxes
 Proper Paychecks
 Remittance of payroll taxes
 Filing of Payroll Returns
 Year End W-2s and Returns
 Workers’ Compensation
Insurance
 At this point, a lot of
potential employers “throw
up their hands”.

 Individual/Sole
Proprietorship
• Completed W-9
• Track payments during year
• $600 or more requires
reporting to IRS
 Certificate
of Insurance
 Other Documents
 ABC
Inspection LLC
• Hiring first worker. Additional inspector.
• Indefinite period of employment
• Daily schedule
• Trained as to ways of the owner
• Provides all tools, computer, software and
uniforms
• Business Cards with ABC name
• ABC handles all appointments and billing
• Report issued by ABC Inspections LLC
 ABC
Inspection LLC needs building
renovated
 One time job. Hired Dick Smith
 Flat fee payment. Completion date set.
 ABC has final approval of renovation.
 Smith responsible for his own time,
materials, tools and how he is to meet
ABC’s expectations.
 No further obligations to Smith once job
completed.
 Proper
classification is important.
 Control is most important factor.
• More control makes a worker more of an
employee.
• Control has several sub factors to look at in
making determination.
 “Hot
button” issue with IRS.
 Steve is a CPA located in Salem, Indiana.
 Over 30 years of experience.
 Works with small business on a variety of
levels.
 Provides payroll services, both live and
after the fact, to small business.
 Uses cloud based system to work with
clients in a many states.
 Email at [email protected].
 Phone 812-883-6938
 Website www.stevenbrewercpa.com