Last updated: December 16, 2022

When it comes to hiring employees, it is important to understand the differences between an employee and an independent contractor. Knowing the differences between the two can help you make sure you are compliant with the law and that you are providing the best possible working environment for your employees.

An employee vs independent contractor checklist is a tool used to help employers determine whether a worker should be classified as an employee or an independent contractor. The checklist typically includes questions about the degree of control the employer has over the worker, the type of work being performed, the duration of the work, and the payment structure. The answers to these questions can help employers determine whether the worker should be classified as an employee or an independent contractor.

This checklist is important because the classification of a worker affects the rights and responsibilities of both the employer and the employee. For example, an independent contractor is not entitled to the same benefits and protections as an employee, such as minimum wage, overtime pay, and workers’ compensation. Additionally, an employer may be liable for certain taxes and other obligations if a worker is misclassified as an independent contractor.

This blog post will provide a comprehensive checklist to help you determine whether a worker should be classified as an employee or an independent contractor. We will discuss the various factors to consider when making this determination, such as the degree of control, the type of work performed, and the duration of the relationship. We will also provide tips on how to ensure that you are properly classifying your workers and avoiding potential legal issues. By the end of this blog post, you will have a better understanding of the differences between an employee and an independent contractor and the steps you need to take to ensure compliance.

Employee vs independent contractor checklist template: Stay organized

Determine Employment Status

Assess Working Relationship

As a first step, one should assess the characteristics of the relationship between the employer and the independent contractor to determine whether it is, in fact, an independent contractor. Factors to consider include the existence of an exclusive contractual arrangement with the employer, the availability of its own office and equipment, and the provision of services to multiple employers.

Assess Behavioral Control

It is necessary to consider the extent to which the employer has the ability to control or influence the contractor’s work. Factors to consider include whether the employer sets the contractor’s working hours, requires the contractor to wear a uniform or follow a certain dress code, and has the power to evaluate the contractor’s performance.

Assess Financial Control

This involves evaluating the extent to which the employer has the ability to control the contractor’s financial affairs. Factors to consider include whether the employer sets the contractor’s rate of pay, whether the employer sets the contractor’s billing rate, and whether the employer can make changes to the contractor’s invoice.

Assess Tax Implications

Assessing employment tax obligations

To determine whether taxes should be withheld from wages, it must be determined whether an individual is an employee or an independent contractor under the law. An employee is generally subject to withholding of federal income, Social Security, and Medicare taxes, as well as state and local taxes, while an independent contractor is not subject to withholding of any of these taxes.

Assess Self-Employment Tax Obligations

Assessing self-employment taxes involves determining whether the individual is liable for the payment of self-employment taxes. Self-employment taxes are taxes imposed on the income of self-employed individuals, which include Social Security and Medicare taxes. The self-employee is responsible for paying these taxes directly to the IRS, rather than having them withheld from their wages.

To determine if an individual is liable for self-employment taxes, the IRS has created a checklist comprised of factors which can help employers assess whether an individual is an employee or an independent contractor. These factors include the degree of control the employer has over the worker, the type of job performed, and the amount of payment for services rendered. If an individual is determined to be an independent contractor, then they are not liable for self-employment taxes.

Obtain Necessary Documentation

Obtain State and Federal Tax Forms

In order to determine whether a person is an employee or independent contractor, it is important to obtain copies of the applicable state and federal tax forms. This includes the W-4 for employees and the 1099 for independent contractors. The W-4 is a form that must be completed by all employees and provides information such as name, address and filing status. This helps employers determine the amount of taxes to be withheld from an employee’s paycheck. The 1099 form is used by independent contractors to report the amount of income they received from their business activities. This form must be completed and submitted to the Internal Revenue Service (IRS) to receive proper taxation.

Obtain Written Agreement

In addition to obtaining the applicable tax forms, it is important to also obtain a written agreement between the employer and the employee or independent contractor. This agreement should clearly outline the rights and obligations of each party in clear language. The agreement should include details such as the job duties, hours of work, compensation, and other benefits. This written agreement helps to protect both the employer and the employee/contractor in case of any disputes. It also outlines the expectations on both sides and helps to ensure that all parties understand their roles and responsibilities.

Maintain Accurate Records

Maintain Accurate Time and Payroll Records

Ensuring accurate time and payroll records are maintained is one of the most important responsibilities in ensuring a successful relationship between employees and employers. It is essential that the employer and employee agree on the appropriate recording of hours worked, the appropriate payment of wages, and the accurate recording of any deductions, such as taxes, that might be taken out of the employee’s pay.

Maintain Accurate Expense Records

Accurate expense records are also an important responsibility for both employers and employees. Expenses should be tracked for any costs that are paid by the employer for the benefit of the employee, such as business-related travel or entertainment costs. These records should be kept in an organized and easy-to-find fashion, so that the employer or employee can quickly reference them if needed. The records should also include detailed expense forms and receipts, in case the employer or employee needs to submit them for taxes or other requirements.

Employee vs independent contractor checklist: FAQs concisely answered

Does the worker have control over their hours?

Whether a worker is an employee or an independent contractor depends on the degree of control the employer has over the worker’s hours. An employee typically has their hours set and controlled by their employer, whereas an independent contractor is free to set their own hours and work as much or as little as they choose.

Does the worker receive a salary or hourly wage?

Employees generally receive a salary or wage for their work, whereas independent contractors are typically paid for the job or project they are hired to complete.

Is the worker provided with tools, equipment, or materials?

An employer may provide employees with tools, equipment, or materials needed to complete their job, but independent contractors are usually expected to provide their own.

Does the worker receive benefits such as vacation or health insurance?

Employees may receive benefits such as vacation or health insurance, which are not typically provided to independent contractors.

Does the worker receive a Form 1099 or Form W-2 at the end of the year?

Employees usually receive a Form W-2 at the end of the year, while independent contractors receive a Form 1099. Employers are required to issue a Form 1099 to any independent contractor who has been paid $600 or more during the year.

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