I have 1 employee that I pay $10 per hour.
I keep records of all I pay her, and she will handle her own taxes.
I hope that you won't mind when I point out that your language (employee handling her own taxes) can get you into some serious trouble if you are ever questioned or audited.
Mis-classification of staff is one of the biggest downfalls of business, and can cause serious problems when caught since the goverment can and will go back and re-assess employment taxes as well as penalties and fines.
The reason I point this out is that years ago I watched a competitor/friend who mis-classified her staff (for 5 years) lose her home, 2 cars, her savings (including her childrens college funds), and still have to make additional payments to the goverment in order to repay her tax fines and penalities.
Whether a person is an independent contractor
or an employee generally depends on the amount of control exercised by the employer over the work being done. Dictating how a job is to be done or limiting the actions of the worker may establish an employer-employee relationship.
An independent contractor
- Operates under a business name
- Has his/her own employees
- Maintains a separate business checking account
- Advertises his/her business' services
- Invoices for work done
- Has more than one client
- Has own tools and sets own hours
- Keeps business records
- Performs duties dictated or controlled by others
- Is given training for work to be done
- Works for only one employer
The Internal Revenue Service relies on the facts in each case. It does not recognize the validity of any written agreement between the parties. Anyone can get a ruling from the IRS by completing Form SS-8.
For most small businesses, independent
contractors should not be considered as substitutes for regular employees. Government agencies generally find that people in the work force are legally employees for tax purposes; the cost of being wrong, remitting unpaid payroll taxes, interest, and penalties can be very high.