How do I know if I should classify workers as contractors or employees?

The IRS has been really looking closely into this issue in recent years. There are very specific guidelines for classification. The IRS published a classification guide called the 20 Factor Test.

Basically, the issues resolve around control. Who controls the workers behavior? In other words, are there set hours? Who controls how the work is performed? Is there specific instructions and training? Second, who controls the finances? Does the worker provide a bill for services? Who is responsible for related business expenses? Can the worker work for other employers? Is the worker trying to make a profit? How is the worker paid?

Finally, How do the parties perceive their relationship? Is there a contract? Who controls the number of hours? Are any benefits provided to the worker? What is the term of the relationship?

Answer provided by: Len Titone – Next Level Financial Management

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