| You may be thinking that someone is a subcontractor | | | | no means all, of the criteria the agent will be looking for |
| because you pay them by a check or cash without | | | | are as follows: |
| withholding payroll taxes. But that is not how the IRS | | | | - Does the subcontractor only work for you - or do |
| sees it. According to the Internal Revenue Service an | | | | they have other clients? |
| employee is defined as anyone who performs a | | | | - Do they provide their own tools, work space? |
| service that is subject to the will and control of an | | | | - Do they set their own hours? |
| employer. If you are laying down the rules as to what | | | | - Is the work they perform, how and when it is done |
| will be done and how it is to be done, then you have | | | | determined by them? |
| an employer/employee relationship and must by law | | | | - Do they have a business phone, business cards, and |
| withhold income taxes. | | | | printed billing forms? |
| Now there are many business owners that do not | | | | - Do they have a legitimate place of business (a real |
| understand this and risk penalties and fines as well as | | | | office for example)? |
| being responsible for your "employee's" non withheld | | | | - Do they advertise? |
| income taxes, social security and Medicare taxes. This | | | | - Do they have employees being paid as employees? |
| can add up to large amount of money. So if your | | | | - Do they have business insurance? |
| business is one which often uses subcontractors, you | | | | Ignoring this risk may seem the easiest and most cost |
| might want to review your policies in this area. The | | | | effective way to do business, but if you are audited, |
| government often conducts "employee audits" within | | | | you will wish you had followed the rules. If you think |
| industries that fall into this category. | | | | you might be in a gray area, then give your accountant |
| So what is an employee audit? The IRS will send in an | | | | a call so they may review your situation and make |
| agent to review your payroll records and | | | | recommendations. And for more information go to |
| subcontractor payments. Persons being paid as | | | | IRS.gov and search for the article titled "Independent |
| subcontractors could be reclassified as employees if | | | | Contractors vs. Employees". |
| they do not meet certain requirements. Some, but by | | | | |