Contractors vs. Employees

contractors vs. employees

recite-contractor vs employee

When companies are hiring there is often a question of whether they are bringing on contractors or employees. Sometimes it is easy to figure out, like when you use an outsourcing company or a subcontractor. Other times it can be more difficult to determine, such as hiring a remote employee or a sales representative.

The IRS asks some questions when determining if someone is a contractor or an employee:

  1. Does the company control what the worker does and how the worker does his job? For example, do you tell the worker he has to work from 9-5, or can he work whenever is convenient to him?
  2. Are the business aspects of the worker’s cob controlled by the company? This can include how you pay the worker, if you reimburse expenses, if you supply tools, etc.
  3. Are there written contracts or employee-type benefits? This can include pension plans, insurance, vacation pay, etc.

There are consequences for miscategorizing employees as contractors. If you are paying workers as contractors when they should be employees, you can be responsible for payroll taxes. Late fees and penalties for missed payroll taxes can be very steep, and the IRS takes this very seriously.

There is no set rule for answering the contractor vs. employee question. Consider the entire relationship, make sure you consider the degree of control involved (what will be done and how it will be done), and make sure you document the decision in case the IRS questions you.

If you have questions about contractors vs. employees or payroll issues, please contact me.

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2014 Health Care Savings Account (HSA) inflation adjusted amounts announced

HSA Limits

The IRS just released information regarding the 2014 inflation adjusted amounts for Health Care Savings Accounts (HSAs).  For 2014 the annual limit for individuals is $3,300 and for families is $6,550.  To be eligible to contribute to an HSA you must have a high deductible health insurance plan.

High Deductible Health Insurance Plans

For a plan to be considered “high deductible” the deductible must be at least $1,250 for individuals and $2,500 for families, and max out of pocket expenses cannot exceed $6,350 for individuals or $12,700 for family coverage.

To read the full IRS Revenue Procedure 2013-25 click here.