This is a fourth installment in of our Employee vs. Independent Contractor series. The fourth factor in determining whether a worker is an employee or independent contractor is the "right to discharge." In essence, the question is "whether the worker can be let go by the company for any reason regardless of performance."
If a worker can be fired for any reason then they are more likely to be an employee than they would be an independent contractor. Generally, an independent contractor would have a contract with the employer to perform a job. If the employer "fired" the independent contractor before the completion of the work then he would most likely be in breach of the contract. However, in most states, employees are considered to be "at will" meaning they can be fired at any time for any reason or no reason at all.
Next time, we will look into the fifth element which is the integral nature of the worker to the job being performed.
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The third factor used by the IRS in determining whether a worker is an employee or independent contractor is "opportunity." This factor is not as clear on its face as the two previous factors. Basically, what the opportunity factor means is the worker has an opportunity to realize a profit or loss from the work.
If a worker is an employee, they get paid a salary or an hourly rate no matter how efficiently they complete the work. An independent contractor has the opportunity to make a profit because he is paid for the job. It is in his best interest to complete the work in a quality fashion and in the most efficient manner possible. If the independent contractor keeps his expenses down then he can realize a greater profit.
Next time: the fourth factor is the employer’s right to discharge or fire a worker.
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As a follow-up to some of my previous posts where I discussed offers in compromise and whether tax liabilities could be bankrupted or not, as well as a previous series of posts where I began analyzing the "search terms" used to "find" my site through Google, I wanted to write about whether someone should file bankruptcy first or should they try to settle their tax liability with an offer in compromise.
The first question to ask is would your taxes even be dischargeable in bankruptcy. I have outlined a brief response to this question in a previous post. Assuming you are over that hurdle and your taxes are dischargeable, I would ask my clients or prospective clients to think about several things. The first of which is: are the taxes the only reason I am filing bankruptcy. If you don’t have a lot of other debt that you are attempting to bankrupt, then I would recommend at least paying a qualified tax professional to do the research to see if you would qualify for an offer in compromise. I personally do not recommend that all of my clients file an offer in compromise, but I hear from prospective clients that call on some large, nationwide companies offering similar services that I do, that they will basically file an offer in compromise for everyone that pays. Of course, that is not possible and not a good way to spend client’s money.
On the other hand, if you have a lot of outstanding medical bills, credit card debt, etc. and your taxes are just the icing on the cake it may make sense to go through the bankruptcy process and give yourself a fresh start.
If you are considering filing bankrupcty, but you would like to speak with someone about the possibility of successfully filing an offer in compromise, please give me a call or send me an e-mail.
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My last post talked about the first factor used by the IRS in determining whether or not a worker is defined as an employee (and therefore income tax withholdings are due from the employer) or an independent contractor and the worker is responsible for their own income taxes.
The second factor is "Capital." In essence what this factor is analyzing is who is investing in facilities, tools, etc. for the worker? If the employer provides all of the tools, financing, and office space to the worker they may likely be an employee. However, if the worker provides his own tools and facilities where his work is performed, he is likely an idependent contractor.
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As you know, I have begun a series of articles about the relationship of a worker to the employer to help business owners determine if they have “employees” or “independent contractors.” The reason this is so important is that if you consider a worker an independent contractor and the IRS deems him to be an employee, your business will be liable for the back employment taxes, not to mention the penalties and interest that will have accrued. You will also most likely face personal liability under the trust fund recovery penalty if your business cannot pay the tax liability.
This post is specifically to discuss the first factor considered by the IRS which is Control.
The essence of this factor is this: how much control can the employer exert over the performance of the worker? Of course, when you hire someone to do some work for you, you always exercise some sort of control because you give the specifications to which you want the work completed. The degree of control is the determining factor in this case. Are you so in charge of your workers that you tell them when to show up, where to park, what work to do, how to do the work, when they can take a break, etc.? If you are exercising this much control over a person then based on the “Control Factor” they are more like an employee. Keep in mind, however, that is not the only factor to be weighed.
Next time, we’ll discuss the “Capital Factor.”
Several weeks ago I wrote a post regarding the tax implications of paying your “workers” as employees or independant contractors. In that article, I spoke briefly about the factors the IRS considers in determining whether your worker is an employee or an independent contractor. Unfortunately, the IRS does’t give much weight to how you label your workers.
I am beginning a series of posts describing and defining the seven factors considered by the IRS in determining how to label a worker. Those seven factors are:
- Control
- Capital
- Opportunity
- Right to Discharge/Fire
- Integral Nature
- Permanence
- Intent
I will update this post with links to the further discussion of each factor, so you can use this post as your menu for further research after all of the articles defining the employer/employee/independant contractor relationships are posted.