Have You Hired a Contract Laborer or an Employee?

One of the most common aspects of hiring is determining if your staff members are contract laborers or employees. There are two organizations that regulate and determine the eligibility of each status, the IRS and the Department of Labor, and while most of their rulings overlap, it is important to ensure that your staff meet ALL of the criteria required by both departments. 

So How Do You Know?

Unfortunately, there are a lot of grey areas in the determination of employee or contractor, but there is a main thread in their guidelines to making that determination: control. How much control do you, as the hiring manager, have over the hired personnel? The general consensus is that the more control the hiring manager has over the hired personnel, the more likely they are to be classified as an employee instead of a contractor. 

For example, when you hire a contractor to build you a porch, as the person doing the hiring, the only thing that you have control over is the final product that you receive. The contractor works when they are available, at the pace they want, with the tools they provide, and they can even have someone else do the work for them if they want. However, the contractor’s employees will work when he/she determines, in the way he/she tells them, with tools provided by the contractor. 

Another key factor to the determination of contractor or employee is the longevity of the arrangement. Typically, when you hire a contractor, it is for one job. However, there are some contractors who work on a regular basis. If you plan to hire an independent contractor for an extended period of time, it can be helpful to put protections in place for yourself to set the boundaries of employment. For example, contractors are paid via invoice instead of paychecks, so be sure to have the person you hire to submit an invoice for hours worked in a specific time period. 

For more information

With all of the grey areas in this department, you can always call your local Department of Employment Services or the Department of Labor for more information or help in determining the nature of the relationship between you and your hiree. We are also available to answer any questions that you may have. 

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Lydia Paasch, Bookkeeper in Springfield MO
I'm Lydia Paasch

After years helping small and medium-sized businesses with their accounting, I’ve developed an the perfect system for making QuickBooks work for you.

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