“Ask Your Attorney” Column

Can I Avoid Payroll Reporting If I Just Hire Someone As An “Independent Contractor”?

Dear Counselor: I have a very small company and need to hire two people to help with shipping my products. Payroll reporting is so time consuming and expensive that I was hoping to hire them as “independent contractors” so that I wouldn’t have to worry about withholding taxes. Can I do that?

Dear Client: You have to be very careful here not to violate the law because the IRS, and other Federal and State government departments, are aggressively pursuing employers who misclassify employees as independent contractors. As you know, if the people who are providing services to you are truly employees, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages. There are also workers’ compensation coverage issues. The consequences of attempting to treat someone as an independent contractor, when they are really your employee, can be catastrophic for a small business like yours. Not only can you be held liable to the State and Federal Government, but to the employees as well. Generally speaking if you have the right to control what the worker does, where, with what tools and supplies, and how the worker does it, the person will be classified as your employee. Properly classifying individuals as independent contractors is not easy, and if you will come in to discuss, we can go over the tests and rules which the government uses to make the determination – before you get into more trouble than you would have had doing it the right way in the first place.

John L. Maier, Jr.