The proper classification of a cleaning lady as an employee or independent contractor is a big deal to the Internal Revenue Service, since it pertains squarely to the method by which Federal Insurance Contributions Act, self-employment and income taxes are assessed and collected. While an employer might want to classify an employee as an independent contractor if possible, and thereby shift the burden of paying taxes, the rules laid down by the IRS are the controlling authority and, despite conventional wisdom's sometimes shrill cry, not that difficult to interpret.
Examples of independent contractors are doctors, lawyers, contractors and auctioneers. These are people engaged in an independent trade, profession or business in which they generally exert control over the way their work day goes and are not dictated to by an employer. To determine whether a cleaning lady qualifies as an independent contractor, it is necessary to examine three factors offered by the IRS that establish whether there is an employer-employee relationship.
The basic issue addressed under the first factor is whether the employer controls what the worker does and how the worker does it. If the cleaning lady is told to be at the house on a certain day at a certain time, and instructed in detail about how the house or office should be cleaned, she's probably not an independent contractor. If, on the other hand, she chooses her own work schedule and completes the tasks according to her best judgment, she's an independent contractor.
The second factor is related to how finances are handled. An independent contractor brings his own supplies to the job and is not reimbursed by the employer except when the services are billed according to agreement. If the person writing the check dictates how and when the money is distributed for services rendered, you have the classic employer-employee setup.
Next the IRS considers whether the person plays a key role in the day-to-day operation of the business. The presence of a written contract or availability of benefits such as health care insurance, sick days or paid vacation all point strongly to the conclusion that the cleaning lady is not an independent contractor. If a business finds it impossible to make a determination about whether a worker is an independent contractor or employee, the IRS will make the call. All you have to do is file Form SS-8. The agency will contact you with its decision.
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