Employee vs. Independent Contractor: Understanding Key Differences
"Explore the distinctions between being an employee and an independent contractor, including benefits, IRS requirements, and the criteria for making the right choice. Gain insights on control factors, expenses, contracts, and more for proper worker classification in this informative session." (Total characters: 318)
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Presentation Transcript
Tuesday, May 1, 2012 presented by Welcome Brown Bag Lunch Series Today s Topic: Employee vs. Independent Contractor ALEXANDRIA Small Business Development Center Catherine Pennington & Karen Urcia Renner & Company CPA, P.C. START, MANAGE, GROW your business series
Catherine Pennington, CPA cpennington@rennercpa.com Karen Urcia kurcia@rennercpa.com Renner and Company, CPA 700 North Fairfax Street, Suite 400 Alexandria, VA 22314 3
Benefits of being an Employee or Independent Contractor Criteria for choosing one or the other IRS requirement If you are wrong, how to fix it Case study 4
Why do I care? Benefits of being an Employee Benefits of being an Independent Contractor 5
Three key considerations Behavioral control Risk of financial loss Nature of relationship 6
Who controls the HOW of a job Instructions? Training? Facilities/Tools When/Where 7
Is it present? Who is responsible for expenses? Did IC make a substantial investment? 8
Is there a Written Contract Are Employee-type benefits provided Are the services key activities of the organization Permanence of the relationship 9
Avoid Surprises Classify workers correctly 10
Employees: Form 941 and State filings Deposit payroll taxes regularly W-2 at the end of year Independent Contractors: 1099-misc at the end of the year (no payroll tax deposit) 11
Obtain a W-9 (Request for Taxpayer Identification Number and Certification) from the contractor Issue 1099-misc at the end of the year Or withhold and remit back-up withholding of 28% of payment 12
Form 1099-Misc Filing Requirement Report payments of $600 or more paid to non- employees each year Filing deadline: For 2012 to independent contractors by January 31, 2013 to IRS by February 28, 2013 13
Misclassification of Employees Relief provisions Misclassified workers can file social security tax form Voluntary classification settlement program More info on IRS website: http://www.irs.gov/businesses/small/article/0,,id=99921,00.html 14
Small Consulting Company Person wants to be an independent contractor Restaurant Struggling student Retired Federal Employee Wants FICA Employee wants additional duties on 1099 Must all payments to employees go on W-2 15
Conclusion 16
Questions? 17
START, MANAGE, GROW your business series Upcoming Events Brown Bag Lunch Series Tuesday, June 5th Noon 1:00 PM at AEDP/SBDC Offices, 625 N. Washington Street, Suite 400 Topic: Get More Out of Your Day Business Development Roundtable Tuesday, June 19th Noon 1:00 PM at the new AEDP/SBDC Offices, 625 N. Washington Street, Suite 400 Topic: How to Make Referral Networking Work for You START MANAGE GROW Workshop Federal Contracting Mini-Series - Tuesday, June 12th 9:00 11:00 AM at AEDP/SBDC Offices, 625 N. Washington Street, Suite 400 Topic: Doing Business with the City Workshop www.AlexandriaSBDC.org
