If you need to hire workers for your Ohio business, it is important to determine if they will be employees or independent contractors. This is mostly something that you must know for tax purposes because taxation for each type of worker is very different. If you wrongly classify your workers, you could end up with a huge tax penalty. There is also the potential for other issues due to misclassification.
Guidelines can help you determine which classification best suits your workers, but it can be tricky. The Office of Child Support Enforcement explains that there are specific situations and conditions of employment that can help you make the correct determination.
An independent contractor is someone who works for your company under your direction but has more freedom than an employee. Employees work for you and under your complete control. You set the hours they work and give them everything they need to do their jobs. The main difference is how much control you have over the person.
Independent contractors usually work on a contract basis while an employee typically has set hours that he or she works. You have more control over when and where an employee works. You may give guidelines and expect a certain quality of work from an independent contractor, but how he or she achieves the end result is largely up to that individual’s discretion.
If your workers are independent contractors, then you do not have to pay employment taxes for them because the IRS considers them a separate business that pays its own employment taxes. They also do not usually qualify for certain employment benefits, such as workers’ compensation or paid vacation.
Deciding which type of worker you have is often fairly easy, but if you are unsure, you need to be especially careful. A mistake could cause you and your business quite a lot of hassle.