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Your business is thriving. As you grow your team, you may want to bring on additional help. Sometimes a contractor is a good fit, but be careful because your contractor may actually be an employee.

It may be tempting to call an employee a contractor, especially is your business is running on thin margins and doing so could save you money on your taxes. But before you make this important staffing decision, you need to fully understand both types of workers and the importance of classifying them correctly, as a misclassification of an employee can cost you in the long run.

The US government is aggressively cracking down on misclassifying workers. Recently, the Department of Labor awarded $10.2 million to 19 states to implement or improve worker misclassification detection and enforcement initiatives in unemployment insurance programs. In a 2009 study, the Government Accountability Office (GAO) estimated that the federal government lost $2.72 billion in 2006 revenue from the misclassification of independent contractors. This is impacting businesses around the country.

The infographic embedded below, created by payroll software company ZenPayroll, provides a flowchart to help you determine whether you need to be classify a worker as an employee or a contractor:

Employee vs. Contractor: Is My Worker an Employee or Contractor? – An infographic by the team at Gusto

If you are still unclear, complete IRS Form SS-8 and they’ll give you a final determination of the worker’s status. It could take 6 months for a decision, but it will give you peace of mind to continue running your business.

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