Copyright 2018 - Pfeiffers Accounting & Consulting LLC

Payroll is another one of those administrative costs that seem to take a lot of your income to pay for.  You may think that you are stuck paying payroll taxes and giving your employees health benefits. However, if you are set up as an LLC, partnership or Corporation, you may hire independent contractors for your business.  You will then not be required to pay payroll taxes or benefits for them since they are not employees. When you use independent contractors in your business, you must folllow guidelines according to the IRS as to  characterizing them properly. According to the IRS these characteristics are as follows:

1. Behavioral control: Covers facts that show whether the business has the right to direct or control how the work is done through instructions, training or other means.

*If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.

2. Financial control: Covers facts that show whether the business has the right to direct or control the financial and business aspects of the worker's job.

*If you can direct or control only the result of the work done, and not the means and methods of accomplishing the result-then your workers are probably independent contractors.

3. Type of relationship: Factor relates to how the workers and the busines owner perceive their relationship.

*Workers can avoid higher tax bills and lost benefits if they know their proper status.  You can read more about it at http://www.irs.gov/pub/irs-pdf/p1779.pdf

As long as you can follow the characteristics for the independent contractor, your worker will be following IRS guidelines properly.  Also, you must file a 1099 for your independent contractor for all earnings they make over $600.00 and must file a 1096 for your business annually.

Copyright Jeanine Pfeiffer

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