My husband is a subcontractor delivering office supplies. He has hired a helper on a full time basis. My husband is listed as a sole proprietor. Should his helper be classified as an employee or contractor, and what are the advantages and disadvantages of either?
Hope from Georgia
If the helper is full-time and not offering his services to anyone else and he works at the direction of your husband, it's likely he is an employee. If he meets certain criteria he must be one or the other, you really don't have a choice. And, if he is an employee you will have to withhold taxes and prepare payroll forms.
Because of the many tax advantages to self-employment many folks try to twist the regulations to fit their situation. To cover both the contrived and the honest situations, the IRS has put together a guide to help determine whether someone is an independent contractor or an employee. The IRS focuses the criteria upon a single issue – control versus independence. The IRS looks at things like: Does the worker perform independently? To what degree is his work controlled?
It is a question of relationship, it is a matter of degree, and it is measured in three categories. The categories are:
- Behavioral control· Who directs and controls what will be done and how it will be done?
- Financial control · Who directs or controls the business aspects of the work?
- Type of relationship· What facts show the type of relationship?
There are a couple of columns on my site about self-employed vs. employee and the advantages and disadvantages of each. You might want to read It's all about relationships: Are you an employee or are you self-employed? and Employee or Self-Employed:Which is Better?
And, as always, read the book that can simplify your tax and financial life, AND save you money!
SELF-EMPLOYED TAX SOLUTIONS .