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Employee or Independent Contractor

December 25, 2014

Businesses often question how to compensate those that provide the business with services.  Clients often wonder if they can treat particular workers as independent contractors rather than employees.

Both the IRS and the New York State Department of Labor have opinions and guidelines with respect to whether an individual is considered an employee or an independent contractor.  It would be important and helpful to understand the factors that are considered.

Generally speaking, some of the factors are:

  1. Whether the person performing the services is engaged in an occupation or a business separate from the “employer”.
  2. Whether or not the work is part of the regular business of the employer.
  3. Whether the worker supplies tools, a place to work, and instruments of his or her own or whether he has to use those of the employer.
  4. Whether the services rendered require a special skill.
  5. The length of time for which the services are to be performed.
  6. The method of payment – whether by time or by the job.

There are other factors.  For instance, if an employee can perform a job whenever he or she would like, the status is closer to that of an independent contractor.   An employee can typically enjoy benefits such as health insurance where an independent contractor does not.

It is important to know the differences since businesses may find themselves the subject of audits and to the extent that employees are misclassified, there can be costs and penalties at risk.