You’ve just found the perfect person to perform the work needed for your company. Now you need to figure out if he/she should be hired as an employee or an independent contractor. There are very specific rules that determine which option you should choose. Below are some examples of each:
Employee:
1. Provides essential services that keep your business running.
2. Work is done under the direction of owner/management.
3. Employer provides a place to perform the work and the tools/equipment to perform the job.
Independent Contractor:
1. Operates their own business and provides services to other customers in addition to your business.
2. Will normally invoice you for the services that they provided.
3. Paid for the project, not by the hour.
Hiring someone on a temporary basis does not automatically make them an independent contractor. Keep in mind that if they only work for you one day but are under your direction and using your materials to get the job done, they should be hired as an employee and have all the required taxes reported.
The IRS has issued guidelines that will help you determine the best answer for your particular situation. They can be found at https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee.
~ Nancy VanHorn, CPP
Assistant Accounting Manager
