Business-Worker Relationship

Finally, the way the relationship between a worker and a business is set up distinguishes between contractors and employees. Employees are eligible to receive benefits from their employer, such as vacation days, sick leave or insurance. Any worker who receives these benefits is automatically considered an employee. However, denying these benefits does not automatically qualify a worker as a contractor. Rather, the business could be illegally denying benefits to an employee as determined by the qualifications above.

Some questions to ask to help determine the status of a worker are:

  • Does the worker operate under his or her own business name?
  • Does the worker hire and manage his or her own employees?
  • Does the worker contract out to businesses other than yours?
  • Does the worker purchase and use his or her own equipment or shipping systems?

If you answered “yes” to these questions, the worker is an independent contractor.

  • Does the worker have only one employer?
  • Do you provide training to the worker?
  • Would loss of the worker contribute to your employee turnover rate?

If you answered “yes” to these questions, the worker is most likely an employee.

Now that you have defined what your workers are, what does that mean for your business?

For every employee that you hire, you must withhold income taxes for that employee as well as pay your own tax based off of what that employee is paid. You are also responsible for following any labor laws applicable, such as minimum wage, safe working conditions, and liability. For an independent contractor, you are not responsible for withholding taxes or providing employee benefits. You must, however, provide the contractor with the required tax form indicating how much you paid them that year.

Many times small business owners find that using contractors is much more cost effective than a long-term investment in an employee when they first get started. However, these companies must be careful to not treat a worker who is actually an employee as a contractor simply for the financial benefit; it could leave you in big financial and legal trouble in the end.

This guest post is courtesy of Robert Corday. 

Guest Blogger

This post is courtesy of a guest post from a contributor to CEO Blog Nation. CEO Blog Nation is a community of niche blogs for entrepreneurs, startups and business owners. For more information on contributing a guest post read here:

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