Wyoming Business Tips for Aug. 22-Aug. 28
August 16, 2010 — A weekly look at Wyoming business questions from the Wyoming Small Business Development Center, part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.
By Cindy Unger, WyomingEntrepreneur.biz business adviser
"I may be hiring some part-time help occasionally for my handyman business. Will I have to make these individuals employees or can they be independent contractors?" Steve L., Casper
Most new businesses tend to shy away from hiring employees due to the complexities of doing payroll and submitting payroll taxes. Before you write a check to someone as an independent contractor, be sure that you understand how the Internal Revenue Service defines "contractors" vs. "employees."
In defining the relationship between an employer and an employee or independent contractor, "degree of control" is important. Questions to consider:
Does the company control or have the right to control workers and how they do their jobs?
Are the business aspects of the worker's job controlled by the payer? Are expenses reimbursed? Who provides the tools/supplies used on the job? Is the company providing any employee benefits to the individual? Will the relationship continue and is the work performed a key aspect of the business operations?
The general rule is that an individual is an independent contractor if the person or business for whom the services are performed has the right to control or direct only the results of the work, not what will be done and how it will be accomplished.
According to the IRS, there is no "magic" collection of factors that automatically define a worker as an employee or independent contractor. IRS looks at the entire relationship and considers the degree of direction and control to make each individual determination.
At the point you determine the individual being paid can be classified as an independent contractor. They need to fill-out a FormW-9, Request for Taxpayer Identification Number and Certification. Needed are the correct name and Taxpayer Identification Number (TIN) of the worker. A TIN can be either a Social Security Number or an Employer Identification Number (EIN). The IRS advises that you keep the W-9 form in your files for four years.
At year-end, businesses are required to file a Form 1099-MISC to report payments made in the course of a trade or business to others for services. If you pay someone who is not your employee (subcontractor, attorney, accountant) $800 or more for services provided during the year, you are required to send a form 1099-MISC to the independent contractor by Jan. 31 of the year following payment. You must also send a copy of this form to the IRS by Feb. 28.
In the event of injury, an important thing to consider if you are hiring independent contractors is liability. If you hire an independent contractor to do a job that could conceivably result in injury, you may want to check if the contractor carries his own Workers Compensation Insurance.
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The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, e-mail email@example.com or write 1000 E. University Ave., Dept. 3922, Laramie, Wyo. 82071-3922.