For employers, differentiating the relationship between a 1099 Independent Contractor and an employee can be challenging. This is most commonly due to employers misunderstanding the difference between the two. Whether the relationship is one of employer-employee or employer-independent contractor will depend on several factors, including how much supervision, direction and control you have over the services.
When trying to properly identify an Independent Contractor things to consider include: Who determines when and where work services are performed? Does the employer directly supervise work and have the right to hire/fire the individual? Does the employer provide facilities, equipment, tools, supplies, etc.? Does the individual carry their own insurance and cover their own risk for profit or loss?
It is vital that you understand the distinction between an independent contractor and an employee. This affects you and your business as improperly treating an employee as a 1099 Contractor can subject you to not only civil penalties but also criminal penalties governed by the New York State Department of Labor plus fines, penalties and interest accrued by the IRS for any underpaid Federal employment taxes.
For more information on how to classify an independent contractor versus an employee, visit the New York State Department of Labor website to preview the guidelines or contact our office to speak with your accountant.
by James W. Swiech, CPA, Tax Manager