Contractor vs Employee

In January, the Department of Labor released new regulations that went into effect in March of this year regarding if someone is really a contractor or if they are required to be treated as an employee. There is a significant difference in labor costs (due to employer payroll taxes) and compliance filings for a small business depending on if someone is categorized as an employee or independent contractor.

However, the Department of Labor does not allow business owners and their workers to just agree on a classification. Meaning that even if you and the person you’re engaging in this work or service with agree to treat them as a contractor does not mean that the IRS will accept it that way. We understand that there is a lot of confusion and a lot of misinformation regarding this classification question and unfortunately, there are also some significant consequences to misclassifying workers.

The new regulations give us a 6-part test to evaluate the “economic reality” of an employment agreement to determine if a worker is an independent contractor or an employee. If you are a client of ours and are struggling with how to properly classify your workers, please give us a call at 877-515-0595 and we can schedule a consultation to walk through your questions and provide guidance for your specific situation.