Are These People Employees or
Independent Contractors?

One of the most common questions we get from businesses regards the status of individuals performing services for them. This is an important issue, since employees must be included in benefit programs like retirement, while independents do not. On the other hand, independents might get unhappy when it's time to end the services and file a complaint with the state department of labor, kicking up an audit in which you are presumed guilty and protests of innocence usually ring hollow. And independents cost less, no SS to match, unemployment taxes to pay, or worker's comp, though in some instances, independents will be required to be covered. Who pays is up to you, the business owner.

The issue, on the Federal rule level, boils down to control. There is a Form SS-8 which can be used to allow the IRS to make the determination, and which serves to give us some of the brightlines on which to base our own decision. Basically, if you, the company, can control the way in which services are provided, whether you do so or not, then the individual is an employee. If you, on the other hand, merely make an agreement on the end result of the work to be done and in no way can control the details of how services are performed, or by whom, then it begins to look like an independent relationship.

For example, in my world, if you hire a bookkeeper to do certain tasks, and can tell her when to start, where to sit, what to do, how to do it, etc., then she looks like an employee. If you hire me, just try it! If you hire me, we'll agree on what's to be done and when and for how much. How I do the work, or if I have someone else doing it for me, and what I wear while I'm doing it, is entirely up to me. I am independent. We know what a vendor/customer relationship looks like, and most of us have been employees, so we know what that relationship looks like as well. Ensure that the relationship is on one end of that scale or the other. Don't pretend to create an independent when you really have an employee. The biteback can be very bad.

Now, all that being said, the states nearly universally use a different set of definitions, known as the ABC rule. Suffice it to say that they consider nearly anyone you pay to be an employee! I wish I was exaggerating, but that's very close to the truth. So you can have a mismatch between what the Fed would say and what the state would say. This can be a problem due to matching programs between them. We fight those battles as they come, and follow the Federal rules.