Outsource Accounting

• 1: Home
• 2: About us
• 3: Outsource Accounting
  • 3.1: Accounting and Bookkeeping Services
  • 3.2: Payroll Processing Services
    • 3.2.1: Employee or independent contractor?
  • 3.3: Cash Management Services
    • 3.3.2: Accounts Payable Services
      • 3.3.2.1: Accounts Payable Process
    • 3.3.4: Accounts Receivable Services
  • 3.4: Financial Analysis Services
  • 3.4: Financial Reporting Services
  • 3.5: Tax Preparation Services
  • 3.6: Practice Management
• 4: Benefits of Outsourcing
  • 4.1: Payroll Outsourcing
• 5: Team
• 6: Articles
  • 6.1: Advance Accounting Services
  • 6.2: Outsourcing Tax Return Preparation
  • 6.3: Vertical Business Growth
  • 6.4: Best Process to Outsources is Accounting
  • 6.5: Accounting Outsourcing Services
• 7: Accounting Software
  • 7.1: QuickBooks Setup
  • 7.2: QuickBooks Training
    • 7.2.1: QuickBooks Short Cuts By Class
    • 7.2.2: Complete QuickBooks Shortcuts by Entry
• 8: Bookkeeping Concepts
  • 8.1: How to Handle Company Car - Sole Proprietor Ship
  • 8.2: How and Where to use a Suspense Account

Employee or independent contractor?

Whether a person working for you is your employee or an independent contractor has one very important business question. If you fail to determine between employee or independent contractor consequence is payroll taxes liability. High employment taxes have led employers to look for every possible way to classify workers as independent contractors rather than as employees.

The common-law test

The 20-question test that the IRS uses to determine whether a worker is an employee can

be summarized in two question:

Do the workers have the freedom to be employers?

Who is responsible for the negligence of employee?

In other words, workers can not hire others to perform services for you and the workers are responsible for damages due to the negligence.If not, they are almost surely employees under the common-law test. Employer is legally responsible for the negligence of his or her employees, but not for the negligence of an independent contractor.

Workers are employees if. . .

• The services they provide are integral to the product/service provided to the

employer’s customers.

• You instruct them on when, where and how to do the work.

• They do not have the freedom to hire, supervise and pay others to do the work.

• The employer sets their hours.

• The employer furnishes their tools and supplies.

• They do not have the freedom to offer similar services to other firms.

• The employer made a significant financial investment in the facilities, furniture or

equipment they need to perform the job.

• They must represent themselves as employees while performing services for you.

 

Common misconceptions

Many employers mistakenly (and dangerously) assume that if workers are retires,

come in part-time or sign an agreement with the right wording, voila, they are Indedpendent contractors. and

there are no employment taxes. Here are the most common—and dangerous—

misconceptions:

• If workers sign a contract agreeing that they will be classified as Indedpendent contractors, they are Indedpendent contractors.

• If they are hired for temporary job assignments, they can be classified as Indedpendent contractors.

• Part-timers can be classified as Indedpendent contractors.

• Workers can be Indedpendent contractors during their probationary period.

• Retirees who return to perform the services provided prior to retirement may be

classified as Indedpendent contractors.

• Payments to workers for “after-hours” services such as taking inventory or moving

file cabinets may be treated as self-employment income and reported on a 1099-

MISC.

• Bonuses, overtime pay and other special wage payments may be treated as selfemployment income and reported on a 1099-MISC.

 

 

Workers can be Independent contractors provided you can substantiate/show the basis of your classification (rather than an afterthought for the audit).

 

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