1099 Tax Software Blog

Independent contractors have several differences in the way that they should conduct business with an employer, as outlined by the IRS. The difference between an independent contractor and an employee can be confusing for some employers. Reviewing example scenarios can help employers understand the difference and avoid misclassification.

Due to every job having its own unique requirements, worker classification can be a point of confusion for some employers. As a general rule, the more that a worker controls when, how, and where the work is performed, the more likely he or she is an independent contractor. However there are other details that make the differentiation complicated. Reviewing example scenarios can help employers become acquainted with the differences, along with the documentation that the IRS provides on its website.

A few scenarios were reviewed previously on this blog, and below are some additional scenarios:

Example 1 – Ted is hired to paint the exterior of a university building. Ted is paid a flat fee for the work, and he uses all of his own equipment and his own van. Ted must work at the university, but he is free to start and stop work whenever he wants. He has a contract with the university to complete the job within 2 months. Ted was paid a flat fee retainer to start the job, and he will be paid the remainder once the job has finished. Ted is financially liable if something goes wrong with the project.

Ted is an independent contractor. He uses all of his own equipment and he is paid a flat fee for the specific goal of painting the building. Once the building has been painted the work will be complete.

Example 2 – Rick is hired by a shipping company to drive one of their trucks. Rick must wear the shipping company’s uniform and is required to follow their other dress guidelines. The shipping company has a supervisor that oversees Rick while he is working and sometimes directs him to change his route. He is required to clock in at 8 A.M. every morning and must work until the route is complete or mostly complete. Rick is free to take three 30 minute breaks during the day whenever he likes, but he must have most of the route completed by the end of the day.

Rick is an employee of the shipping company. Although Rick has some freedom as to when he can take his breaks, he has oversight on almost every other aspect of his job.

Example 3 – Sarah works as a waitress for a local pub. She has flexibility in picking the days that she comes into work, but once she arrives at work she must stay for at least 4 hours and reports to the manager. She is paid with a combination of an hourly wage and tips. She works part-time, and she received paid on-site training for her first 2 weeks.

Sarah is an employee of the pub. Although her work schedule is flexible, once she arrives at work she is required to work 4 hours and report to a manager.

by

Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

If you have any questions or comments about our software, feel free to contact us at any time.