Determining whether a worker is an employee (paid via payroll) or an independent contractor (issued a 1099) can be difficult for many business owners. Because each tax agency applies its own criteria, classification rules can become confusing. The IRS checklist below outlines the factors used to distinguish between an employee and an independent contractor.
- Does the individual work on your site with your tools and/or equipment?
- Do you determine the individual’s hours they will work?
- Do you provide rules for the individual to complete tasks assigned to them?
- Does the individual work more than 20 hours per week consistently for you?
- Can you confirm that the employee does not provide the same service to other businesses for more than 50% of their time?
If the majority of your answers are “yes,” the individual is most likely an employee who should be included on payroll. A “no” to one or more questions does not automatically mean they are a contractor; each case requires individual evaluation. For guidance on determining whether someone belongs on payroll, please consult your HD Growth Partners advisor.