That age old argument for business owners... it goes something like this -
Business Owner- "He's not an employee, he's a 1099 sub."
Accountant- "Do you tell him where to go, what to do or how the work is to be done? Then he's an employee."
So here's the rule of thumb as expressed by our friends at the IRS: there are several things that employers should know about hiring people as independent contractors versus hiring them as employees. First, The IRS uses 3 characteristics to determine the relationship between businesses and workers:
1. BEHAVIORAL CONTROL covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
2. FINANCIAL CONTROL covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.
3. TYPE OF RELATIONSHIP factor relates to HOW the workers and the business owner perceive their relationship.
If an employer has the right to control or direct not only what is to be done, but also HOW it is to be done, then the workers are most likely employees. If an employer can direct or control only the result of the work done and the the means and methods of accomplishing the result the the workers are probably independent contractors.
WORK WITH YOUR ACCOUNTANT TO GET THIS RIGHT, OR IT COULD COST YOU WITH BOTH THE IRS AND YOUR WORK COMP AND LIABILITY AUDITS!
( 10/2012 IIAV magazine article Dave Evans)