Employee vs Independent Contractor? CST Group CPAs Northern Virginia Accounting Firm serving the DC area

Getting paid for your work is vital for any contractor. Accounting software will make it easier to do so with the ease of invoicing. Accounting software allows you to invoice your clients and keep up on unpaid invoices. If you do not file your profit and expenses, you are putting yourself at risk of being audited by the IRS. The wages of a contractor are questioned during audits.

However, if the IRS later reclassifies a contractor as an employee, the employer faces liability for back payroll taxes, possible criminal sanctions and invalidation of benefit plans. The biggest pro of having independent contractors is having recourse if the work is shoddy, as well as not having to pay payroll taxes. Since I’ve made the change to employees, the benefits are so numerous that I will no longer use a contractor for accounting or bookkeeping services. In addition, I’m at the point where I’m also considering changing our legacy contractors to employees this year. The trade-off is that your employers do not put money towards your health insurance, workers’ compensation, bonuses, unemployment taxes, payroll taxes, or contribute to your 401. You will also forgo employee benefits like the Occupational Safety & Health Act , the Fair Labor Standards Act , and Title VII of the Civil Rights Act. Failure to meet these challenges correctly can lead to audits by the IRS, your state’s employment commission, and insurance companies.

Would Your Company Pass the Independent Investor Test?

The accountant for independent contractor ruled that both Carolyn and Mary should have been treated as employees of the CPA firm. Even though they were not supervised, their skill levels were not high when compared to Walter and Gilbert who were licensed public accountants. Whenever I am confronted by how the EDD will treat workers in a specific industry or profession, I look to see if there is an administrative “precedent decision.” What does this mean? A Board “precedent decision” has the symbol “P-T” before the case number. I now provide my employees with a dedicated laptop that is to my specifications, including security controls to prevent loss of data, should something happen. I was content with this business model until I had my first scare. A contractor disappeared with my client’s record and statements.

Be sure that your https://www.bookstime.com/ preparer goes over all of these items with you. It takes awhile to determine how much to pay each time. For starters, as a general rule, you should be setting aside 18% of the business income that you receive in a separate savings account. The actual amount can be adjusted up or down by working with your accountant/tax preparer. He or she will help you determine the right amount to pay. Paid helpers – you need to either put them on payroll or find out if they too are independent contractors. The contract is a legal agreement which should be discussed with a lawyer, not your tax preparer or friends.

Independent Contractor or Not?

You will get paid for the projects you work on, do taxes on your own, and work when you want to work. The trusted small business accounting team at C.E. Thorn, CPA, PLLC know what it takes to keep area businesses profitable. Our team is ready to help you manage your bookkeeping and other business accounting needs.

When it is the service provider who seeks reclassification, the IRS may flag the contracting party for an audit of how it classifies all of its independent contractors. If the audit results in the reclassification of more than one independent contractor as an employee, the financial consequences could be ruinous. Classifying workers as either employees or independent contractors is important. The correct worker categorization has a profound impact on businesses because it affects not only how workers are paid, but how the government gets paid. Because of the latter reason, this is an issue that will not be going away any time soon.