At the Law Offices of Warner Mendenhall, we provide legal services to businesses and their agents. We handle everything from incorporation to dissolution. We strive to help our clients manage every aspect of their business; this includes the tax structure best suited to their business needs.
Recently, we received questions regarding independent contractors. Independent contractors are an attractive option for growing businesses. They are a way to minimize expenses and liabilities. An independent contractor pays taxes through their personal income, meaning that your business will not have to issue a standard 1099 tax form to them. However, you may still have to file a 1099-NEC form with the IRS. This means you will not pay unemployment taxes, payroll, or pay into workers' compensation.
Employers are vicariously liable for the negligent acts or omissions committed by employees. Having independent contractors means that your business could not be held vicariously liable for the acts of an independent contractor. An exception to this rule, is for inherently dangerous activities.
The employee vs. independent contractor discussion is unique to each company's situation. When interpreting the nature of the employment, courts look at the level of control a business retains over the employee or independent contractor. Generally speaking, if an employer displays a great deal of control, this will tell the court the relationship is employer/employee.
The IRS developed a twenty-factor test to help companies determine if the relationship is that of an employee or an independent contractor. Some important factors are the ability to set a schedule, furnishing tools, training provided, and the right to fire or terminate the relationship. If your situation allows you to retain independent contractors, we can help create an independent contractor's contract. This agreement will help protect you and your company.
If you have questions regarding independent contractors or questions about corporate law, please contact us here. We offer free initial consultations.