According to the
IRS, a general rule is that anyone who performs
services for you is your employee if you can control
what will be done and how it will be done. This is so
even when you give the employee freedom of action. What
matters is that you have the right to control the
details of how the services are performed.
Example:
Donna Lee is a salesperson employed on a full-time basis
by Bob Blue, an auto dealer. She works 6 days a week,
and is on duty in Bob's showroom on certain assigned
days and times. She appraises trade-ins, but her
appraisals are subject to the sales manager's approval.
Lists of prospective customers belong to the dealer. She
has to develop leads and report results to the sales
manager. Because of her experience, she requires only
minimal assistance in closing and financing sales and in
other phases of her work. She is paid a commission and
is eligible for prizes and bonuses offered by Bob. Bob
also pays the cost of health insurance and group-term
life insurance for Donna. Donna is an employee of Bob
Blue.
Full-Time Employment
There is no specific number of hours that
an employee must work before he becomes a full-time
employee under federal law. That definition is created
by the employer. Most employers define full-time
employees as those who regularly work 35 to 40 hours a
week. These employees typically are entitled to benefits
such as paid sick leave and vacation and insurance
coverage.
Part-time employees are any employees who
work less than a full-time schedule and may receive some
benefits.
Part-Time
An employee, either regular or temporary, who is normally
scheduled to work less than forty (40) hours per week.
Temporary
Temporary
employees may work either a full or part-time schedule
but are usually hired for a specific project or for a
finite period of time and do not receive any benefits.
PROS And CONS Of Temporary
Employees
Pros
Enables your business to adjust more easily and quickly to workload
fluctuations: such as unexpected or
temporary demands: special projects, seasonal or peak
periods, employee shortages.
Maintains staffing
flexibility: allows employers to fill gaps in
employee absenses, illness, vacation, maternity or disability leave,
sudden departure
Can evaluate worker
without commitment Based on your evaluation or preferences, you can
employ a temp for a designated short term or, if
desired, offer a full-time position to a worker who
suits your business. Some businesses employ temporary
workers as an excellent and cost-efficient way to
recruit and test the abilities of new workers before
signing them on full-time. Other companies will
repeatedly use the services of a temp worker who has
proven to be a company asset. Hiring a temp can also be
a good way to continue getting work done while you
search for the perfect candidate for a particular
job. If unsatisfied with a temp’s work performance,
all you need do is contact the temp agency and they will
take care of the rest.
Can save time and
money: The cost of hiring temp workers is often
cheaper than the cost of hiring permanent employees with
benefits. When you hire an employ through a Temp Agency,
it becomes the temp worker’s employer. The agency is
responsible for and bears the financial burden of
recruiting, screening, testing and hiring workers;
payroll expenses and paperwork; payroll and withholding
taxes; unemployment and workers’ compensation
insuranceand any employee benefits they may wish to
provide. Some agencies even provide employee
training.
Cons
Training Needs:
Every time a temp starts a new work assignment – no
matter how skilled or unskilled – a certain amount of
training is required in order for them to perform their
assigned tasks to suit the specific needs of that
company. Of course, if the same temp is brought back
again, this might not be required.
Morale Issues:
Morale and employee relations problems can arise
when you have temps working alongside permanent
employees for months, doing the same work and putting in
the same hours, but not receiving the same benefits
afforded their permanent employee coworkers.
Safety Issues:Certain
types of jobs are inherently dangerous and require
careful safety training. Studies show that frequency
and severity rates of on-the-job injuries are
significantly higher with temporary workers. No matter
what a temp’s experience is, care must be taken to see
that dangerous tasks are performed safely. Never assume
a temporary worker is fully prepared to work
unsupervised until you have taken the time to see that
they can safely perform their work tasks.
Legal Concerns:
Improper treatment or contracting for temporary
workers could result in legal action.
Who Is A Common Law Employee
According to the
IRS under common-law rules, anyone who performs
services for you is your employee if you can control
what will be done and how it will be done. This is so
even when you give the employee freedom of action. What
matters is that you have the right to control the
details of how the services are performed.
To determine whether an
individual is an employee or independent contractor
under the common law, the relationship of the worker and
the business must be examined. All evidence of control
and independence must be considered. In an
employee-independent contractor determination, all
information that provides evidence of the degree of
control and degree of independence must be considered.
Facts that provide evidence
of the degree of control and independence fall into
three categories: behavioral control, financial control,
and the type of relationship of the parties. Refer to
Publication 15-A,
Employer's Supplemental Tax Guide for additional
information.
Who Is An Independent Contractor
According to the
IRS a general rule is that you, the payer, have the
right to control or direct only the result of the
work done by an independent contractor, and not the means and methods of accomplishing the result.
Example:
Vera Elm, an electrician, submitted a job estimate to a
housing complex for electrical work at $16 per hour for
400 hours. She is to receive $1,280 every 2 weeks for
the next 10 weeks. This is not considered payment by
the hour. Even if she works more or less than 400 hours
to complete the work, Vera Elm will receive $6,400. She
also performs additional electrical installations under
contracts with other companies, that she obtained
through advertisements. Vera is an independent
contractor.
Consequences of
treating an employee as an independent contractor.
If you classify an employee as an independent contractor
and you have no reasonable basis for doing so, you may
be held liable for employment taxes for that worker.
See Internal Revenue Code section 3509 for additional
information.
How Should I Report Payment Made to
Independent Contractors
According to the
IRS you may be required to file information returns
to report certain types of payments made to independent
contractors during the year. For example, you must file
Form 1099-MISC, Miscellaneous Income, to report payments
of $600 or more to persons not treated as employees
(e.g. independent contractors) for services performed
for your trade or business. For details about filing
Form 1099 and for information about required electronic
or magnetic media filing, refer to information
returns.
Who Is A Statutory
Employee
According to the
IRSif workers are independent contractors under the
common law rules, such workers may nevertheless be
treated as employees by statute ( statutory employees )
for certain employment tax purposes if they fall within
any one of the following four categories and meet the
three conditions described under Social security
and Medicare taxes , below.
A driver who distributes beverages (other
than milk) or meat, vegetable, fruit, or bakery
products; or who picks up and delivers laundry or dry
cleaning, if the driver is your agent or is paid on
commission..
A full-time life insurance sales agent
whose principal business activity is selling life
insurance or annuity contracts, or both, primarily for
one life insurance company.
An individual who works at home on
materials or goods that you supply and that must be
returned to you or to a person you name, if you also
furnish specifications for the work to be done.
A full-time traveling or city salesperson
who works on your behalf and turns in orders to you from
wholesalers, retailers, contractors, or operators of
hotels, restaurants, or other similar establishments.
The goods sold must be merchandise for resale or
supplies for use in the buyer s business operation. The
work performed for you must be the salesperson s
principal business activity. Refer to the
Salesperson section located in
Publication 15-A, Employer s Supplemental Tax
Guide for additional information.
Who Are Statutory
Non-Employees
According to the
IRS there are two categories of statutory nonemployees: direct sellers and
licensed real estate agents.
They are treated as self-employed for all Federal tax
purposes, including income and employment taxes, if:
1.
Substantially all payments for their
services as direct sellers or real estate agents are
directly related to sales or other output, rather than
to the number of hours worked and
2.
Their services are performed under a
written contract providing that they will not be treated
as employees for Federal tax purposes.
Refer to information on
Direct Sellers located in
Publication 15-A,
Employer s Supplemental Tax Guide for additional
information.
Resources
As
am employer you are required to know the status of your
employees. Is the person working for
you an employee or an independent
contractor? Knowing the status of your
employee is important to determining your
obligations towards them in terms of pay and
benefits and towards the IRS in terms of
withholding and paying taxes.
The link below will give you access to the federal
guidelines for determining the status of your employees.
According to the