

Are you completely confident you're correctly classifying workers as independent contractors?
At both the federal and state level, you can be required to pay years in back taxes. Also, you can be required to pay back wages and retroactive insurance premiums, as well as additional penalties. And the risk of potential lawsuits is added reason for you to take this issue seriously.
Several tests are used by various government agencies for classifying workers, but before we look at the tests, let’s take a closer look at the definition of an independent contractor.
An independent contractor is any worker you bring onboard to deliver a specific result and determines on his or her own terms how to achieve that result. On the other hand, an employee is a worker who completes the tasks you give to him or her in the timeframe and manner specified by you. The difference here is the level of control you, as the employer, have over the worker.
The tests for independent contractors include several factors, and it’s important to note that there is no single deciding factor – all factors must be considered in the full context of a particular case.
The IRS and several other agencies use the “Right to Control” test, also known as the “Common Law” test, to classify workers. It takes the following three categories into consideration:
The Department of Labor (DOL) and the Occupational Safety and Health Administration (OSHA) use a six-factor test called the “Economic Realities” test to establish the true business relationship between employers and workers. It does this by looking at the financial dependence a worker has on an employer.
The first three factors, listed below, are virtually the same as the Right to Control test.
The other three factors take a broader look at some of the concepts to determine the extent to which a worker depends on someone else’s business for his or her continued employment.
In addition to these two tests, several courts and administrative bodies apply the “Hybrid” test to determine employment status by combining factors from both the Right to Control and Economic Realities tests. The Hybrid test recognizes that the process of determining whether a worker is an employee or independent contractor may involve examining every aspect of the employment relationship.
The rules surrounding worker classification are complicated, but it’s important to get it right to avoid penalties and lawsuits. If you’re ever in doubt, it’s always best to classify the worker as an employee.
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