Great question Tracy. The I R S has publications and rules to define employee vs contractor.
Do you have an accountant??. You should ask your accountant.
If she is an employee, you have to deduct Social Security and Withholding Taxes and
yes at year end issue a W-2.
If a contactor at year end, you must issue a 1099 for her compensation.
Good luck, LUCKIEST
Hi Tracey, welcome to our community! You've asked a great question that many small business owners find themselves wondering at some point or another during their course of business. Our experts here on the community have several excellent articles that may be of help in you making your decision. Although the articles are a bit older, much of the advice and information should still be current today in helping you make your decision. Please be sure to read the articles Freelancer or employee? and Getting Help: Employee vs. Independent Contractor. We also have a fairly recent discussion on this going on at: Independent Contractor vs Employee. Feel free to jump in and ask any questions that you may have and our helpful members will certainly provide their assistance.
However, I agree with Luckiest, if you are still unsure about the status of someone who is providing services for you, the safest choice is always to consult with your accountant or tax attorney.
Please let us know what you decide!
Thank you. Based on the information she seems to be an independent contrator.
Her earnings will not exceed $600 does that mean as well that a 1099 is not required?
Also if she was an employee, would she qualify for unemployment compensation earning less than $600 per year?
We are a new business launching 2015 and is in need of an accountant before launch. Sone general help is needed until then.
When you decide the times someone works, and tells them how to do the job, they are an employee. Please speak to your accountant and get the IRS publications.
Tracey, their has been many great responses to your question. I agree it is a great question that should be discussed with your business adviser, broker, or tax adviser.
If it where me who was faced with such a decision, I would first look at the cost pertaining to have someone work as a W-2 employee vs 1099 Independent Contractor. Based on what your initial question was she works on an as needed basis if she is not busy. Well, that sounds like someone who works on a per project basis which would be an independent contract or freelancer.
I hope these wonderful responses allow you to make an informed decision.
All the best,
This issue should only be discussed with your tax advisor. Period.
I'm a business advisor and would never advise my clients on this issue because it's a tax issue. And even though I have worked doing yearly taxes, I still wouldn't advise anyone on this topic.
I've had new clients tell me about the aggravation they had to go through because their state decided someone was and employer even though they worked on projects.
I've listened to one who hired someone as a contractor -- and the job was a contracting job as issued by the IRS but their state said that since they didn't have a business license that they were employs and the owner was fined big bucks in back taxes, and fines. (mind you, in the state in question, they didn't need a license if they were earning under 12K).
Someone else hired a contractor, a therapist, and again, they did follow the IRS guidelines. Then, 6 months later, the business owner needed to hire another therapist, full time, who would work set hours, follow a special protocol, etc. so she was looking for an employee.
Well, the contractor wanted this new job. So after an application process, she hired the former contractor as an employee. Again, she had to pay a fine, to her state, for the 6 months the person was a contractor.
AND finally, some times the contractor figures out that they're better off being an employee and the line between the two is very gray.. They tell the IRS, State, or City the business resided in, usually after they're no longer working there. Why do they do this? Because as contractors I have to pay much more in taxes, then if I were an employees. They get some of their tax money back, a "finders fee" from the IRS, and the business owner suffers. (often the cost of a lawyer to fight it is more than the fines.)
So again, even though I have a background and do taxes, I recommend that you talk to an accountant (at a minimum) but an EA or CPA at best.
There are so many nuances to the laws.
Great answers so far, keep them coming!
I hired a friend, to be on-call for me. No time or days are set. She could need to call a clients on a scheduled time and date for me using our skpye account. Each call is about 1 hr long, where questions are asked about my business.
If she is busy calls will be made by me. Would she be considered an employee or contractor?