Employee or Independent Contractor?

Ohio State University has put together a list of 20 questions which the IRS uses to determine if a worker is an independent contractor or employee. The answer of yes to any one of the questions (except #16) may mean the worker is an employee. This may be a useful list for business agents or organizers to use if there is some doubt about the status of a worker. Ohio State published this article in a Small Business Series Fact Sheet.

Small Business Series Worksheet

A person working for a business as an employee or independent contractor is an important distinction. The first question is who determines if a person performing work for a business is an employee or an independent contractor? Answer: the IRS. The second question is how will a business who misclassifies an employee as an independent contractor get caught? Answer: IRS audit of the business, unemployment claim filed by a former worker, or a claim filed for worker's compensation benefits filed by a worker, a former contractor filing a Form SS-8 (Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income tax Withholding) to mention a few. The third question is what are the consequences of being caught and having an independent contractor reclassified as an employee? Answer: the employer becomes responsible for both the employers and employees FICA (15.3% of gross wages), FUTA (currently $56 per year per employee), as well as the federal income tax (20% of gross wages). The IRS may also bring in the state and as a result, the employer may also become liable for the state income tax, as well as state unemployment and worker's compensation. Employer's may also face a penalty equal to the amount of the back taxes owed. Likewise, the employer will owe interest on all back taxes from the due dates. And, the business may be required to support the injured person for the rest of their life.

Ohio StateUniversity Fact Sheet
Community Development
700 Ackerman Road, Suite 235
Columbus, OH 43202-1578

Small Business Series
Employee or Independant Contractor

CDFS-1179
Tom Willett
Issue of Correct Classification