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Chapter 9: Hiring Employees versus Engaging Independent Contractors | 319
tion for a long period of time, the courts are more likely to find that the worker is an employee.
6. To what extent is the work an integral part of the hiring organization’s operations? Independent contractors usually perform work that is peripheral to the hiring organization’s operations. Where a worker is doing a job that is essential to the organization’s operations, this factor will weigh in favor of employee status.No single factor is dispositive in making the determination of worker status, and some of them overlap. Each situation is evaluated in light of all of the circumstances of the hiring organization–worker relationship.8
9.2.3 The Internal Revenue Code Test to Determine Whether a Worker Is an Employee or an Independent Contractor
The Internal Revenue Service also has an interest in seeing that employers who classify workers as independent contractors or contract employees are legally entitled to do so. Under the Internal Revenue Code (the Code), an employer is required to withhold estimated federal income taxes from an employee’s wage payments. In addition, the Code imposes Social Security and Medicare taxes on the wages of employees, both of which an employer must remit to the IRS through payroll deduction. Employers themselves also pay Social Security and Medicare taxes on each person they employ.
In contrast, an organization is not required to withhold income or FICA taxes from its payments to an independent contractor, nor does it pay any Social Security or Medicare taxes on the independent contractor’s fee. A hiring organization’s legal responsibilities end with the filing of annual information returns (form 1099) with both the worker and the IRS that show the money paid to the contractor during the tax year. An independent contractor is responsible for directly paying both income and FICA taxes to the IRS.9
8. See Chao v. Mid-Atl. Installation Servs., Inc., 16 F. App’x 104, 106, 2001 WL 739243 **1 (4th Cir. 2001); Dubois v. Sec’y of Def., 161 F.3d 2, 1998 WL 610863 **1 (4th Cir. 1998) (unpublished disposition); Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376, 1382–83 (3d Cir.), cert. denied, 474 U.S. 919 (1985); Brock v. Superior Care, Inc., 840 F.2d 1054, 1059 (2d Cir. 1988).
9. The IRS has stepped up its efforts to identify employees incorrectly classified as independent contractors in recent years: independent contractors tend to understate their income—sometimes erroneously, sometimes consciously—resulting in
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| Title | Recruitment and selection law for local government employers - Page 335 |
| Full Text | Chapter 9: Hiring Employees versus Engaging Independent Contractors | 319 tion for a long period of time, the courts are more likely to find that the worker is an employee. 6. To what extent is the work an integral part of the hiring organization’s operations? Independent contractors usually perform work that is peripheral to the hiring organization’s operations. Where a worker is doing a job that is essential to the organization’s operations, this factor will weigh in favor of employee status.No single factor is dispositive in making the determination of worker status, and some of them overlap. Each situation is evaluated in light of all of the circumstances of the hiring organization–worker relationship.8 9.2.3 The Internal Revenue Code Test to Determine Whether a Worker Is an Employee or an Independent Contractor The Internal Revenue Service also has an interest in seeing that employers who classify workers as independent contractors or contract employees are legally entitled to do so. Under the Internal Revenue Code (the Code), an employer is required to withhold estimated federal income taxes from an employee’s wage payments. In addition, the Code imposes Social Security and Medicare taxes on the wages of employees, both of which an employer must remit to the IRS through payroll deduction. Employers themselves also pay Social Security and Medicare taxes on each person they employ. In contrast, an organization is not required to withhold income or FICA taxes from its payments to an independent contractor, nor does it pay any Social Security or Medicare taxes on the independent contractor’s fee. A hiring organization’s legal responsibilities end with the filing of annual information returns (form 1099) with both the worker and the IRS that show the money paid to the contractor during the tax year. An independent contractor is responsible for directly paying both income and FICA taxes to the IRS.9 8. See Chao v. Mid-Atl. Installation Servs., Inc., 16 F. App’x 104, 106, 2001 WL 739243 **1 (4th Cir. 2001); Dubois v. Sec’y of Def., 161 F.3d 2, 1998 WL 610863 **1 (4th Cir. 1998) (unpublished disposition); Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376, 1382–83 (3d Cir.), cert. denied, 474 U.S. 919 (1985); Brock v. Superior Care, Inc., 840 F.2d 1054, 1059 (2d Cir. 1988). 9. The IRS has stepped up its efforts to identify employees incorrectly classified as independent contractors in recent years: independent contractors tend to understate their income—sometimes erroneously, sometimes consciously—resulting in |
