Do you pay independent contractors? The IRS and labor departments are lovin’ them some audits right now.

In the new economy, nearly 1 in 3 people are working as independent contractors, and the number is growing. Worker misclassification has become a hot issue for the IRS and state labor agencies because many entrepreneurs and small businesses apply the wrong standards when determining whether they can pay someone as independent contractor. Labor audits are increasingly more common, and penalties can be steep. The primary consideration for state and federal officials in determining classification is the degree to which employer exerts control over the work; they consider 3 main categories of factors, and all relevant factors are weighed when making the call:

Behaviorial

• Is the worker allowed to determine who performs the work?  For example, if you hired someone to come in part-time to do social media marketing, would it be acceptable for them to send someone else in their place?

Financial

• Do you require the worker to sign a non-compete?  Independent contractors are free to seek out other business opportunities in the same field in which they work for you.

Nature of Relationship

•  How important is the worker to the day-to-day business activity?  If a worker provides services that are an integral part of the primary business activity, they are likely an employee.

Let’s get down to business.