Subcontractor or Employee

Subcontractor or Employee, that is the question.  Do you have to take on a payroll and tax liabilities or can you just issue a check and a 1099-Misc. form at the end of the year?  Does filling out a W-9 make someone a subcontractor? 

There are consequences for misclassifying an employee as a subcontractor. You may be held liable for employment taxes for the employee as well as late fees, penalties and interest.  Subcontractor status has become a large audit trigger by tax agencies.

So, what's the answer? 

The IRS has this to say:
Determine the degree of control and independence of the employer/ employee relationship.  1) Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?  2) Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)  3) Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

The key is to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.


What special circumstances does your company have?  Are you an employee that is being misclassified?  We want to hear from you.  For help in determining your company's specific situation, call Corporate Options at (847)344-2262.