I seem to run into more and more dentists who will hire an associate doctor or other employee as an “independent contractor”. My advice has always been: “There is no way you are going to be able to meet the standard of independent contractor with the IRS”. I was recently challenged on this point again at a seminar I was giving and thought others could benefit from by research.
Form SS-8: Determination of Worker Status for the Purposes of Federal Employment Taxes and Income Tax Withholding.
IRS Code 3509: Defines what an employee is, and consequences of failure to meet the requirements for employment.
- Behavior: Does the company control or have the right to control how the worker does their job? YES=Employee
- Financial: Is the business aspect of the workers job controlled by the payer? YES=Employee
- Type of Relationship: Do you have a written contract. YES=Employee
Note: Anyone who performs work for you is your employee if you can control what will be done or how it will be done. This is true even if you give the employee the right to freedom of action. In other words, if you don’t do the above but still have the right to do it, they are your EMPLOYEE!
These are the Federal guidelines that apply to everyone. Your State may even have additional requirements. In an economic climate where every governmental entity is trying to find more income, audits will become more and more common.
DON’T EVEN TRY TO DO THE INDEPENDENT CONTRACTOR ROUTINE TO AVOID TAXES. YOU WILL LOSE. YOU WILL OWE ANY UNPAID TAXES PLUS INTERST PLUS PENALTIES. THE EMPLOYEE, OR SHOULD I SAY FORMER INDEPENDENT CONTRACTOR, HAS NO LIABILITY. AS THE BUSINESS OWNER, YOU DO!