Employee vs Contractor
Steve Perry- Many small business owners prefer hiring contractors over employees to avoid payroll management complexities but risk IRS audits. - Misclassifying employees as contractors can lead to costly taxes and penalties due to strict IRS scrutiny. - The IRS offers guidance based on three categories: behavioral control (who directs the work), financial control (who manages job expenses and payment), and the nature of the relationship (permanency and benefits). - No single factor determines status; the overall situation dictates if a worker is an employee or a contractor. - Example: A helper working irregular hours with multiple clients and no benefits may be a contractor, but stricter controls over hours and exclusivity would make them an employee. - Minor changes in control or relationship can shift a contractor to employee status, requiring payroll setup. - Business owners should consult tax professionals to properly classify workers and avoid penalties, ensuring compliance and sustainable growth.