top of page
Writer's picture@mybluefieldwv

Is Your Independent Contractor Really an Employee?

Watch the video below or scroll down to read the recap


In this workshop, we cover all things concerning proper worker classification in conjunction with the U.S. Small Business Administration and the WV Small Business Development Center.

Presentation Slides:

Misidentification and the Economy

  • Adding economic costs & denies benefits

  • Big losses to Social Security and Medicare Funds

  • Undermines the economy

  • Growing issue

    • Gig economy is expanding 3x faster

    • Over 50% of the workforce likely to join the gig economy by 2027.


Today

  • Types of Workers

  • Internal Revenue Service (IRS) Test

  • Department of Labor (DOL) Test

  • Contractor Documentation


5 Types of Workers

  1. Statutory Employees

  2. Statutory Non-Employees

  3. Independent Contractors

  4. Employees

  5. Government Workers


Statutory Employees & Statutory Nonemployees

  • Statutory Employee: Worker who by law is considered an employee.

  • Statutory Nonemployee: Worker who by law is NOT considered an employee


Statutory Employees

Always Employees:

  1. Drivers - Beverages (not milk), Meat, Fruit, Vegetables, Bakery Products, Laundry/Dry

  2. Life Insurance Agents - Work primarily for one company

  3. Home Workers - Business supplies goods, then goods returned to business, Business specifies how work is done

  4. Traveling Sales - Goods are merchandise for resale/supplies for operation

    Salesperson's principal business activity

Always Contractors

  1. Direct Sellers - Payments related to sales/output, Written contract will not be employee

  2. Real Estate Agent - Payments related to sales/output, Written contract will not be employees

  3. Companion Sitters - Not employed by service


Internal Revenue Service

  • Degree Control

  • Independence


IRS Degree of Control

Financial factors, Behavior factors, and Relationship factors all point to the Type of Worker

*Note: there is no magic number of factors. The key is to examine the entire relationship.


Behavioral Control

How much control over the activities of the worker has the business owner reserved the right to direct?

  • Types of Instructions Given

  • The Degree of Instruction

  • Worker subject to Evaluation System

  • Indicates employee

  • Business provides training

  • Indicates employee

*Note: The more detailed the instructions, the more control the business exercises over the worker.


Financial Control

Does the business have the right to control economic aspects of the worker’s activity?

Does the worker have…

  • Significant investment in equipment

  • Unreimbursed expenses like business filings

  • Opportunity for profit or loss

  • Makes services available to other businesses

  • Payment method usually not hourly

  • Flat Fee

*Note: If a worker has a significant investment in the tools/equipment and has unreimbursed expenses, the worker has a greater opportunity to lose money and thus more likely an independent contractor.


Type of Relationship

How does the worker and business perceive their relationship to each other?

Is there a--

  • Written contract?

  • Contract alone is not proof of IC status

  • Employee-type benefits provided?

  • NOT provided to real IC

  • Relationship mostly permanent?

  • Indefinite relationship indicates employee

  • Key business activity?

*Note: If a worker provides key services to business operation, it’s more likely that

the business has the right to direct/control the worker’s activities.


What About Officers?

Officers are normally employees when they work in the business

  • Officers are not employees if--

  • Perform no/minor services

  • Not entitled to compensation (direct or indirect)


Fair Labor Standards Act (FLSA)

  • Newer regulations

  • Now Conforms to courts’ FLSA interpretation

  • Totality of circumstances analysis


Economic Reality of the Relationship Test

Integral to Business, Managerial Skill Affects profit/loss, Investments, Skill and Initiatives, Permency, and Employer Control affect Type of Worker


Guidelines

  • No one factor is weighted more than any other.

  • Certain factors are unimportant in determining whether there is an employment relationship. the place

    • where work is performed

    • the absence of a formal employment agreement

    • whether an alleged independent contractor is licensed by State/local government


Trouble Areas

  1. Construction workers

  2. Franchisees

  3. Volunteers

    1. Employees can’t volunteer services to employer

  4. Trainees/Students

    1. Depends on the activities

  5. Home Workers

    1. Entitled to all benefits of the law


Exemptions

  • Minimum Wage and Overtime - Professionals, Seasonal amusement/recreation, Small newspapers, Newspaper Delivery, Part-time Farmworkers, Casual Sitters/Companions

  • Overtime Only - Transportation, Domestic Service, Motion Picture Theaters, Farmworkers

  • Partial - Hospitals/Residential care, Remedial Training, Fire and Police


Documentation for Contractors

As a business owner with independent contractors, you need to get this right


Formal Contract

  • Signed by both parties

  • Include--

    • Detailed scope of work

    • Changes clause

    • Delivery schedule & deadlines

    • Amounts & timing of payments

    • Ownership of the work

    • How and when is contract terminated

  • Plus language that says—

    • Contractor is NOT employee

    • There will be no withholding, etc.

    • Contractor pays own expenses

    • Contractor not eligible for benefits (because not employee)

    • Contractor must provide proof of own liability insurance

    • Contractor must provide proof of business registrations and licensing

  • Consider ordering a boilerplate from attorney


W-9 Request for Taxpayer Identification and Certification

  • Get the W-9 form from the independent contractor before work starts

    • Certify taxpayer ID(EIN or Social Security Number)

    • Certify isn't subject towithholding

    • Certify exemption from some reporting and payments

    • Not sent to IRS.

      • Keep in files for auditor if necessary

  • Used to create Form 1099-NEC or Form 1099-K 21

*Note: To check Tax ID numbers of payees, you can sign up to use the IRSe-Services site


Insurance

Keep Copies-

  • General Commercial Liability

  • Commercial Auto Insurance

  • Workers’ Compensation (if the independent contractor has employees)

  • Umbrella

You should consider

  • Subcontractor Default Insurance (SDI)


Business Registrations

Keep copies-

  • State, county or city business license

  • Special Licensing by Activity

    • Contractors’ license (construction)

    • Federal Business licenses

      • E.g., Alcohol, Tobacco, & Firearms

  • Professional licensing


Note: Records Retention

There are 2 Concerns:

  1. Statue of Limitation - Breach of Contract

    1. 10 Years

    2. After breach or when plaintiff discovers the breach, whichever is later

  2. Tax Filings - IRS

    1. Fraudulent tax filing forever

    2. Use electronic stroage system


Resource Links

2023 Form 8919 (irs.gov) Uncollected Social Security and Medicare Tax 28


Contact

 

To hear the Q&A portion of the workshop, watch the recap video at the top of the blog and click on time marker 34:43.

 

Let's Get in Touch!



Jim Spencer, Executive Director Bluefield WV Economic Development Authority | jspencer@bluewv.org | (304) 902-2332 x 2405


Dee Puckett, Operations Manager

Bluefield WV Economic Development Authority | dpuckett@bluewv.org | (304) 902-2332 x 2408


Faith Blackwell, Administrative + Marketing Assistant

Bluefield WV Economic Development Authority | fblackwell@bluewv.org



Bluefield WV Economic Development Authority Logo (The words "My Bluefield" underneath an outline of the Bluefield, West Virginia Skyline)


Recent Posts

See All

Comments


bottom of page