Employee or Independent Contractor?

The success of companies like Uber, Lyft, and Airbnb are driving a “Gig” Economy. This means there is a larger pool of labor available for short-term contract or freelance work. Many employers are gaining a competitive edge by tapping into it.

It is important that employers determine whether their workers are employees or independent contractors. Employers are required to withhold income taxes and pay Social Security, Medicare taxes, and unemployment tax on wages paid to an employee. Employers usually do not have to withhold or pay taxes on payments to independent contractors.

Whether a worker is an employee or an independent contractor depends on many factors such as the worker/employer relationship and the amount of behavioral control the employer exerts over the worker.

The IRS provides a free service to help employers determine the status of their workers. To obtain a free determination letter from the IRS, complete and submit Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to the IRS. The form is available at https://www.irs.gov/pub/irs-pdf/fss8.pdf.

For payroll support, contact A to Z Accounting at 520-318-4912.