Payroll or Contractor? 

Misclassification Can Cost You Big 

Classifying your workers properly as employees or contractors is essential for avoiding costly penalties. The IRS is strict about worker classification, and misclassifying a worker can lead to significant fines, back taxes, and legal trouble.

When determining worker classification, consider the following:

• Control: The more control you exert over how, when, and where the work is done, the more likely the worker should be classified as an employee.

• Financial Relationship: Contractors often have a more flexible payment structure, and they are typically responsible for their own tools and expenses.

• Ongoing Relationship: If you have a long-term working relationship with a person, they may be considered an employee, even if they perform tasks for multiple clients.

If you are unsure whether a worker should be classified as an independent contractor or employee, consider filing IRS Form SS-8 to receive a determination.

Correct classification will help you avoid costly back taxes and penalties while ensuring compliance with labor laws.