Small Business Development Guide
Employee vs. Independent Contractor
There are 20 guidelines that the IRS looks at when determining the status of an employee versus an independent contractor. Basically, if you are working with someone on a contractual basis, where that person can hire additional help, can make his/her own hours, set his/her own schedule, and determine his/her own profitability on the job, then he/she is an independent contractor.
If you set the hours, give specific instruction, have control over the technique for the job, and supply the tools for the job, then the relationship is employee/employer. An independent contractor handles his/her own taxes, workers' compensation, etc. It is your responsibility to issue a FORM 1099 to the independent contractor by January 31 and a FORM 1096 accompanied by a FORM 1099 for each contract employee to the IRS by February 28 stating the total dollars paid to the independent contractor for the year. Call the IRS at 1-800-829-1040 (www.irs.gov) for more information.