Academic journal article Journal of Accountancy

Independent Contractor or Employee?

Academic journal article Journal of Accountancy

Independent Contractor or Employee?

Article excerpt

Small businesses use concultants to perform tasks that traditionally were done by employees in order to reduce overhead costs and simplify their bookkeeping. Also, in recent years, companies have laid off employees only to re-engage them as consultants to perform the same tasks.

The Internal Revenue Service has formulated a 20-question test to determine the correct classification of an independent contractor or employee (See "A Taxing Matter: When Is a Worker an Independent Contractor?" JofA, May91, page 34). The IRS generally will classify as an employee someone who has no other customers and who is assigned work, given specific work hours, trained to perform an assigned task, continually used by the company or given an office.

The IRS has assigned groups of agents to review compliance. The impact of this review may have far-reaching effects on the multitude of small businesses that use nonemployee computer and other technical personnel.

Although Congressman Jon Christensen (R-Nebr.) plans to introduce a bill to clarify the independent contractor rules and reduce the 20-point test to 3, passage of such a bill is uncertain. The criteria for being considered an independent contractor would include

* A written contract stating that independent contractors will handle their own taxes. …

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