Daycare
Dayz
for Providers
& the Work at Home Section Presents:
Employee or Independent
Contractor?
By Brigitte Thompson © 2003
Sales are increasing, the phone is ringing
day and night, mail is piling up, and stress is starting to drain you.
Your business is growing!
This is good news, but how to handle the
increased work can be a dilemma.
If you are considering
hiring someone to help, you will have to determine
if this person is an employee or independent contractor.
As a contractor, the person
you hire will be responsible for completing
her own business tax returns and paying related taxes. If the
person
turns out to be an employee, the burden of payroll taxes falls
on you,
the business owner.
Unfortunately, in the
eyes of the Internal Revenue Service (IRS), a sole
proprietor with one employee has to fill out most of the same
forms as a
large business with 100 employees.
The IRS has very clear rules on this subject, which are discussed
in IRS
Publication 15 - Circular E - Employer's Tax Guide, available
from its
web
site at www.IRS.gov.
You will have to examine
many items to make this determination, but there are some control
issues that weigh heavily on this classification and focus
on the relationship between the worker and the business.
The extent to which the
business owner controls the worker's services and whether the
worker can realize a business profit or loss are important
issues to evaluate.
Be sure to read through
the criteria carefully. If a person is hired as
an independent contractor but later determined by the IRS to
be an
employee, the employer can be held responsible for back tax liabilities,
interest and penalties.
If the person is determined
to be an employee, you will need to get
established as an employer.
Before you hire an employee,
you need to obtain an Employer Identification Number (EIN).
Form SS-4 (Application for Employer
Identification Number) is used for this purpose and can be ordered
from
the IRS. The EIN is a number used by the IRS to identify your
business
and will appear on all preprinted federal payroll tax forms.
If you have any questions, Publication 1635 - Understanding Your
EIN may
help with this process.
If you are not sure how
to determine this classification, you can obtain
help from the IRS by requesting Form SS-8, Determination of Employee
Work Status For Purposes of Federal Employment Taxes and Income
Tax
Withholding.
All information is based
on the current federal tax laws of the United
States. Since these laws are subject to change, neither the author
nor
Busy Parents Online assumes liability for modifications that
occur after
the
creation of this work. Every effort has been made to ensure this
information
is as accurate and complete as possible. This article contains
general
information for businesses and is offered as an overview of the
law.
Brigitte Thompson is the Provider's Side Editor of
Daycare Dayze at Busy Parents Online Magazine
