Using a contractor can be an attractive option that allows you to scale hours up or down as needed. This can be significantly cheaper too, since you do not have to provide them with benefits or vacations. But before you pull the trigger on utilizing an independent contractor, you should know that the IRS takes intentional misclassification of contractors very seriously. The IRS understands the financial incentives to using 1099 contractors and they know the temptation exists to classify a worker as a contractor when you truly view and treat them as an employee.

The IRS has devised a series of tests to determine if someone should be classified as an independent contractor or W-2 employee. The tests are fairly extensive but basically fall into 3 categories:

• Behavioral – Do you control what the worker does and how they do their job? Do they have set hours? Do they have control over how and when they do their job?
• Financial – How is the worker paid? Are they reimbursed for expenses? Who provides supplies?
• Type of relationship – Are there written contracts or employee-type benefits (e.g. insurance, vacations, 401k, etc.?) Is the relationship permanent? Is the work performed integral to the business?

Not sure how you should classify someone? Feel free to contact us, we’d be happy to provide you with guidance.

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