Employee or Sub-Contractor, Which one is it?

Employee or Sub-Contractor?
It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.
Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee.

You do not generally have to withhold or pay any taxes on payments to independent contractors.
According to the IRS three categories help determine if someone is an employee or a sub-contractor.
The IRS looks at the level of control exercised over a worker in the following three categories.
The IRS test often is termed the “right-to-control test” because each factor is designed to evaluate who controls how work is performed.
Under IRS rules and common-law doctrine, independent contractors control the manner and means by which contracted services, products, or results are achieved.
The more control a company exercises over how, when, where, and by whom work is performed, the more likely the workers are employees, not independent contractors.
1. Behavioral control:
Instructions that the business gives to the worker, such as;
What tools or equipment to use.
What workers to hire or to assist with the work.
Where to purchase supplies and services.
What work must be performed by a specified individual.
What order or sequence to follow.
Training that the business gives to the worker.
2. Financial control:
The extent to which the worker has un-reimbursed business expenses.
Independent contractors are more likely to have un-reimbursed expenses than are employees.
How the company pays the worker. An employee is generally guaranteed a regular wage amount for an hourly, weekly.
An independent contractor is usually paid by a flat fee for the job.
The extent to which the worker can realize a profit or loss.
3. The relationship between the parties.
Whether or not the company provides the worker with employee-type benefits.
If the worker has the expectation that the relationship will continue indefinitely, rather than for a specific project or period.
If a worker provides services that are a key aspect of your regular business activity.
When looking at these categories they consider the amount of instruction needed varies among different jobs….
the more a company directs a person in these three categories the more likely they will be considered an employee.
A sub-contractor should be doing the following:
Advertise their own services [business cards, website, job signs, truck lettering, etc.]
Have and use their own tools.
Performs work for numerous other businesses.
 
f you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker 

Don’t risk it - not worth it