Although the IRS is cognizant of the advantages to a business choosing to employ independent contractors, employers should take special precautions to be certain that they are in compliance with all existing IRS articles regulating contractor status. In addition, business owners are advised to keep current with Congressional activities that could change the definition of independent contractor status.

Some of the key IRS definitions are detailed below.

  1. An employer is an individual, corporation, partnership, trust, estate, or any other entity, including tax-exempt organizations, for whom a person performs services of any nature as an employee.
  2. An employee is an individual who performs services subject to the control of an employer with regard to what services shall be performed and how they will be completed.
  3. Independent contractors still lack a clear definition. Congress has yet to enact legislation to clarify which workers will be defined as independent contractors and which ones will be defined as employees.
  4. Still, there are certain existing qualifications that employers need to stay in compliance with, in order to avoid any misunderstandings with the IRS. Employers can qualify individuals as an independent contractors if they follow these simple guidelines.

    1. There is reasonable basis for not treating the worker as a regular employee.
    2. The employer has neither in the past nor present treated the individual as a regular employee.
    3. All germane tax returns are filed on the basis that the individual is not an employee.
Generally speaking, independent contractors own their own tools, may work at their own locations, are subject to loss on projects, determine how work will be accomplished, hire their own help, work on their own schedules, and typically have more than one contract at any given time.

Conversely, employees have their labor hours and methods supervised, are typically trained by employers, generally work for only one company at a time, and maintain ongoing relationships with their employers.

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