Independent Contractors vs W-2 employees

Many employers are grappling daily with how to define their employees-whether they are Independent Contractors or W-2 employees .

The IRS has put out 3 simple rules which an employer can use when defining an employee.

These include:

1.  Behavioral- Does the employer have the right to control what and how the employee does their job.

2.  Financial- Does the employer control things such as how the employee is paid, expenses are paid to name a few.

3. Type of Relationship- Are there written contracts or employee benefits such as vacation pay, pension plan or insurance.

 Due to the downsizing of organizations over the last 10 years, many employers have reclassified employees going from W-2 to Independent Contractor to save on paying payroll taxes and benefits.

The IRS when doing an audit of an employer looks closely at this as a way to increase revenue via payroll taxes, penalties and interest.

It is important for all employers to classify your employees correctly and above all be "payroll compliant."