Employee or Independent ContractorMay 17, 2021 -- Posted by :
I attended a chamber meeting featuring a panel discussion that included an accountant and attorney. As Home Watch businesses continue to grow and scale, the debate between Employees and Independent Contractors continues. The laws and rules change all of the time. I am absolutely not an expert on this subject. In fact, I consider myself allergic to accounting which is why I always defer to the professionals. My only intention is to share what I learned to help my Home Watch colleagues know what may be suitable for their business and what questions to ask their own accountants and lawyers.
This US Department of Labor Relations and IRS may have different interpretations. My comments are generalized.
The Economic Realities Test
Behavioral Control: A worker is an Employee when the business has the right to direct and control the work to be performed by the worker, even if that right is not exercised.
Financial Control: An Independent Contractor must invest in their own business and have the freedom to make a profit. They are not paid hourly.
Relationship: There must always be a contract. For the Independent Contractor, it would define the project, "end-game," duration, etc.
If their services are core to your business, they may be an Employee. The Independent Contractor may choose to create an LLC and advantage of deductions that are "ordinary and necessary expenses" to operate their business.
The Independent Contractor enjoys the freedom of working on their own schedule. They are required to pay estimated taxes, self-employment taxes, get their own liability insurance, health insurance, etc.
An Employee may get benefits such as insurance, vacation, sick pay, profit-sharing, or a pension plan. The employer is responsible for withholding taxes from employee paychecks, reporting, and submitting payments as required.
As an entrepreneur and business owner, you must surround yourself with a team of professionals. Legal and financial advice now will protect you, your clients, and your business later.
Guest Author: Diane Pisani – Home Watch Academy