8.2 CLASSIFICATION OF EMPLOYEE VS INDEPENDENT CONTRACTOR

Question 1

WHY IS IT IMPORTANT TO CLASSIFY EMPLOYEES’ VS INDEPENDENT CONTRACTORS?

Answer 1

UNDER FEDERAL LAW, THAT DISTINCTION CONTROLS THE TYPES AND AMOUNTS OF WAGE TAXES THE EMPLOYER MUST PAY AS WELL AS THE EMPLOYER’S REPORTING REQUIREMENTS. FOR EMPLOYEES, BUSINESS:

1) MUST WITHHOLD INCOME TAX AND A PORTION OF FICA
2) RESPONSIBLE FOR PAYING FICA AND FUTA ON EMPLOYEE WAGES
3) MUST GIVE EMPLOYEES A W-2 SHOWING TAXES WITHHELD.

FOR CONTRACTORS,
A) FORM 1099
B) NO WITHHOLDING OF FICA OR FUTA
C) CONTRACTORS ARE RESPONSIBLE FOR PAYING THEIR OWN INCOME TAX AND SELF EMPLOYMENT TAX
D) MAY DEDUCT BUSINESS EXPENSES ON SCHEDULE C

Question 2

HOW DO YOU DISTINGUISH BETWEEN AN EMPLOYEE AND AN INDEPENDENT CONTRACTOR?

Answer 2

1) COMMON LAW TEST - WORKING ON THE JOB 40 HOURS A WEEK, ONE PRINCIPAL, USES PRINCIPALS’ TOOLS, MOST INCOME EARNED FROM ONE PRINCIPAL.

2) IRS TEST - SEE SCREEN SHOT

Question 3

WHAT ARE THE SPECIFIC FINES LEVIED ON EMPLOYERS FOR MISCLASSIFICATION?

Answer 3

1) UNINTENTIONAL MISCLASSIFICATION
2) INTENTIONAL OR FRAUDELENT MISCLASSIFICATION

Question 4

WHAT IS THE STATUTORY EMPLOYEE EXEMPTION?

Answer 4

TREATED AS EMPLOYEES EVEN THOUGH THEY MAY APPEAR AS INDEPENDENT CONTRACTORS

Question 5

WHAT IS THE STATUTORY NONEMPLOYEE EXEMPTION?

Answer 5

TREATED AS AN INDEPENDENT CONTRACTOR FOR ALL FEDERAL INCOME TAX PURPOSES EVEN THOUGH THEY MAY APPEAR AS EMPLOYEES