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We get a lot of questions about worker classifications. Many employers want to classify workers as independent contractors and issue a 1099 instead of paying payroll taxes. On the surface, this seems like a good way to save money, but the costs of misclassification are high.
The IRS has prepared guidelines to assist employers with this classification. If you would like a complimentary summary of this information,
CLICK HERE and we will be happy to send it to you.
In addition, the Department of labor has issued Fact Sheet #13: Employment Relationship Under the Fair Labor Standards Act (FLSA).
Here is the summary:
The U.S. Supreme Court has on a number of occasions indicated that there is no single rule or test for determining whether an individual is an independent contractor or an employee for purposes of the FLSA. The Court has held that it is the total activity or situation which controls. Among the factors which the Court has considered significant are:
1) The extent to which the services rendered are an integral part of the principal's business.
2) The permanency of the relationship.
3) The amount of the alleged contractor's investment in facilities and equipment.
4) The nature and degree of control by the principal.
5) The alleged contractor's opportunities for profit and loss.
6) The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
7) The degree of independent business organization and operation.
There are certain factors which are immaterial in determining whether there is an employment relationship. Such facts as the place where work is performed, the absence of a formal employment agreement, or whether an alleged independent contractor is licensed by State/local government are not considered to have a bearing on determinations as to whether there is an employment relationship. Additionally, the Supreme Court has held that the time or mode of pay does not control the determination of employee status.
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