In New York, some business owners are using independent contractors, also known as freelancers, to perform various tasks in order to avoid paying taxes they would have to pay for employees. Known as employee misclassification, employers classify employees as though they are freelancers. This practice is due to the fact that the employer does not need to pay a freelancer's Social Security or Medicare taxes. Independent contractors pay their own taxes because they are self-employed.
Both federal and state agencies are on the lookout for employers who classify their employees as independent contractors. Employers who are caught via tax audits must pay fines. The Internal Revenue Service (IRS) mandates which person is an employee and which person is an independent contractor. If the employer plans a person's work schedule or supervises the individual, then the person is typically an employee. An employee receives a salary. A freelancer is paid a designated fee for performing a particular job.
However, the IRS looks at the entire picture. For instance, a person could receive hourly payments and still work as an independent contractor if the other criteria apply. Another thing to consider is whether the work performed by the person is an intricate part of the business or an unrelated service. Business owners who want to know whether they are guilty of misclassification can read more details by visiting the official IRS website.
Business owners must follow employment regulations when they classify workers. Unfortunately, employee misclassification offers unscrupulous employers opportunities to evade paying taxes. Employees who believe they are misclassified as independent contractors may want to contact a lawyer who knows about employment law. It is illegal for a small business owner to classify an employee as a freelancer. Independent contractors who find themselves in these types of situations may benefit from seeking legal counsel.