For Subscribers

It's Classified

Are they really contractors rather than employees? If you don't get it right, you could face steep penalties.

By Nichole L. Torres

Opinions expressed by Entrepreneur contributors are their own.

It's tempting to classify your hired help as independentcontractors to avoid paying employee payroll taxes. But it'salso very dangerous to incorrectly classify them--the IRS will hityou with hefty penalties, and you risk having to pay even more thanyou would have owed with payroll taxes. Bruce Mayberry, CEO ofCapitolTax Relief, a legal service in Woodland Hills, California,counsels small businesses and private citizens on such tax issues.According to Mayberry, the IRS doesn't play around with 941violations, the tax code dealing with employer tax.

To prevent an IRS snafu in the first place, start-ups should bevery clear about who qualifies as an independent contractor and whois an employee. The IRS even provides a form to clarify it for you:Fill out Form SS-8, Determination of Worker Status, tocertify it once and for all. The IRS will send you a letter saying"yea or nay" that you can keep for your records. Samplequestions to ask yourself: Do you and your independent contractorhave a written contract? Does he work in his own office or shop?Does he work for several businesses at one time? If you answer"yes" to these questions, this person is likely anindependent contractor.

Continue reading this article — and all of our other premium content with Entrepreneur+

For just $5, you can get unlimited access to all Entrepreneur’s premium content. You’ll find:

  • Digestible insight on how to be a better entrepreneur and leader
  • Lessons for starting and growing a business from our expert network of CEOs and founders
  • Meaningful content to help you make sharper decisions
  • Business and life hacks to help you stay ahead of the curve

Editor's Pick

Everyone Wants to Get Close to Their Favorite Artist. Here's the Technology Making It a Reality — But Better.
The Highest-Paid, Highest-Profile People in Every Field Know This Communication Strategy
After Early Rejection From Publishers, This Author Self-Published Her Book and Sold More Than 500,000 Copies. Here's How She Did It.
Having Trouble Speaking Up in Meetings? Try This Strategy.
He Names Brands for Amazon, Meta and Forever 21, and Says This Is the Big Blank Space in the Naming Game
Business News

Would You Buy Maggie Murdaugh's Monogrammed Snake Print Pillows? Items From the Murdaugh Family Home Are Going Up for Auction

The sale comes just weeks after Alex Murdaugh was sentenced to two consecutive life terms for the June 2021 murders of his wife, Maggie Murdaugh, and son Paul Murdaugh.

Business News

American Airlines Sued After Teen Dies of Heart Attack Onboard Flight to Miami

Kevin Greenridge was traveling from Honduras to Miami on June 4, 2022, on AA Flight 614 when he went into cardiac arrest and became unconscious mid-flight.


How to Detect a Liar in Seconds Using Nonverbal Communication

There are many ways to understand if someone is not honest with you. The following signs do not even require words and are all nonverbal queues.

Business News

Jake Paul and Lindsay Lohan Fined $400,000 for 'Illegally Touting' Crypto

The SEC just disclosed that eight celebrities agreed to a massive settlement without admitting guilt.


After Early Rejection From Publishers, This Author Self-Published Her Book and Sold More Than 500,000 Copies. Here's How She Did It.

Author Karen Inglis breaks down the strategies and tactics you need to generate awareness and sales for your self-published book.


Entice Customers to Make Additional and Larger Purchases Using These Two Tactics

With transparency, permission, and an eye on the customer's perception of value, you can knock both cross-selling and upselling out of the park.