Jun15
In a client consulting session a few weeks ago, we were discussing how this couple’s business had grown past their personal capacity to get everything done. They were putting in long hours with lots of late nights, working weekends and starting to get burned out.
It became obvious, it was time to hire.
The conversation then turned toward whether or not this couple should hire an independent contractor or an employee. Knowing the difference between the two is critically important. If you get it wrong, IRS penalties can be painful. Here’s some help distinguishing between the two and how to stay away from IRS trouble:
An independent contractor:
- Negotiates their rate of pay.
- Sets their own schedule.
- Can refuse work or projects.
- Provides an invoice for services performed.
- Often works for other people.
- Uses their own supplies.
- May get reimbursed for expenses.
- Usually works on a project by project basis rather than for an indefinite period of time.
- If an independent contractor’s services are terminated, they are not eligible for unemployment benefits.
An employee:
- Is under the employer’s direct control, whether full or part-time.
- Works for a set rate of pay.
- Works a schedule determined by the employer.
- Is provided the work space, tools, and supplies needed for the job.
- May be required to punch in and out or keep a time sheet.
- Is offered benefits such as health insurance, worker’s comp, and retirement that an independent contractor is not eligible for.
- If an employee is terminated, they are eligible for unemployment benefits.
Here’s how to avoid IRS trouble:
- Incorporation: If an independent contractor has incorporated his or her business, then the IRS will not question the status as an independent contractor.
- A written contract: A good written contract will help set an independent contractor apart from an employee.
- Other clients: If a contractor can point to references or testimonials from other clients, the IRS will accept the status as an independent contractor.
- Benefits: A company providing benefits—such as health insurance or paid vacation—to a contractor is a big red flag for the IRS.
May 4
I grew up on the east coast, a 30 minute drive from New York City. I have fond childhood memories of watching the Yankees play baseball at Yankee Stadium, the Knicks play basketball at Madison Square Garden, and watching the Rockettes perform before the showing of a feature film at Radio City Music Hall.
I love anything that reminds me of the Big Apple: soft pretzels, pastrami sandwiches, and outdoor hot dog stands. So I was thrilled when a stainless steel hot dog emporium arrived in the downtown square next to the Starbucks in my small college town.
Read More »
Jan19
Every business has one, even though you may not know what it is. “Critical number” is a term coined by Jack Stack in his terrific book, The Great Game of Business. As the terms indicates, a critical number is a number, in other words it’s measurable: a percentage, a dollar amount, a rating. And, of course, it’s critical, or key to the success of your business. This is obvious. Here’s what’s not so obvious:
Read More »
Dec 1
I have a client who’s considering the purchase of an expense piece of software to create customized drawings for his customers. The price tag, with the right computer and printer, is about $5,000. He asked me what I thought about his making this purchase, and I asked him a series of questions.
Read More »
Sep29
I am not an accountant. Neither am I the son of an accountant. Yet there I was taking over a company drowning in debt. The disaster I inherited totaled nearly $200,000 of past due payables and included six months of federal withholding taxes that had not been paid and ten months of state withholding taxes that also had not been paid.
Read More »
