Independent Contractor Or Employee?

Remember that kids' game - Animal, Vegetable, or Mineral? Today in business, there is a similar question: Independent contractor or employee? But it's not a game. The misclassification of a worker can have serious financial consequences.

It's an issue that always comes to the forefront in an economic downturn. For every employee, employers must withhold income tax, withhold and pay Social Security and Medicare taxes, and pay unemployment tax. In addition, employees may be eligible to be included in benefit plans. However, employers generally do not have any of these obligations for an independent contractor.

The problem is that both penalties and interest can pile up if a worker is incorrectly treated as an independent contractor. In the case of a retirement plan, an employer who has misclassified an employee as an independent contractor eventually will be required to make up the benefits the individual would have received as an employee. That can end up being quite expensive.

For more information and a list of what the IRS considers when determining if someone should be a W2 employee or a 1099 employee, read the rest of the article here.