Determining if a worker should be an employee or a contractor is based on a number of factors.  The following steps should be used in conjunction with each other to ensure your business will have a reasonable basis for classifying a worker as either an employee or an independent contractor if ever asked by the IRS:

1. Assess the relationship between your business and the worker

If your worker provides services to many businesses, besides your own, they are an independent contractor.  If the worker only works for you, then additional factors need to be considered before you can be certain of subcontractor treatment.  Specifically, the degree of control and level of independence in the relationship between your company and the worker in question should be reviewed.  The IRS has three categories you can use as a guide in your assessment.  Read more.

2. Let the IRS help you make the appropriate determination for your worker

If after reviewing the relationship between your business and your worker you are still uncertain of the appropriate classification, file Form SS-8for IRS assistance in making this determination.

3. Keep records that document your worker's relationship

If you determine the worker is a contractor, you should have a contract that details your agreement with them and any other documentation for support.

In closing, determining whether a worker is a contractor or an employee is not always straightforward, but following these steps will help you develop a reasonable basis for making your decision.  

If you have used contractors in your business, click the button below to track their payments for the tax year:

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