When you hire someone to work for your Pennsylvania business in some capacity, how you classify that employee matters. How you classify an employee affects everything from that employee’s tax obligations to your own ability to control what he or she does, so it is important that you classify your worker correctly from the outset. Failing to do so may land you in legal hot water, taking time and money away from your day-to-day business operations.
Per the IRS, below are some of the key differences that exist between employees and independent contractors.
What makes someone an employee
Several different variables should help you determine if someone is an employee or a contractor. If you have a say in where, when and how your worker performs work for you, this suggests he or she is an actual employee. The same holds true if you cover the costs associated with that worker’s tools, supplies or what have you. A worker who is on the payroll and receiving employment benefits is also typically a formal employee, rather than a contractor.
What makes someone an independent contractor
Independent contractors have more autonomy and flexibility than traditional employees, meaning you have less control over when, where and how they do their jobs. You are not responsible for withholding taxes for independent contractors, and you do not have to offer them employment benefits, either.
As more professionals across Pennsylvania and the nation work from home, issues involving whether workers are employees or independent contractors may become more common. Employers that misclassify employees may face fines, back taxes and other potential legal repercussions.