It can be easy to misclassify a worker, especially when it comes to small businesses. There are a few different classifications that employees can fall under, such as employee or independent contractor, salaried or hourly and overtime exempt or non-exempt. Assigning the wrong status to a worker can bring costly consequences like liability for employment taxes, required payment of back wages, and other penalties. In order to avoid such trouble that will bring nothing but headaches, you should know exactly what constitutes certain designations and how to determine how you should classify a worker.
Independent Contractor vs. Employee
The first determination you should make is whether or not you technically have an independent contractor or an employee. The Internal Revenue Service (IRS) has developed a set of criteria to help employers make this designation. The IRS states that there are three areas where you should look to figure out if your worker is an employee or an independent contractor.
Typically, workers are considered to be employees if the employer has the right to control and direct the work performed by the worker. Your worker may be an employee if:...