If you’re looking for professional Florida painters, it’s important to know the difference between employees and subcontractors. Since each type of worker has certain rights and obligations, knowing how they differ from each other can help you understand a series of aspects, including how they’ll participate in your health and safety systems, and how to avoid potential problems with government agencies, such as the IRS. Making the distinction between these two categories of workers can also help you build and maintain an ongoing working relationship with the employee or subcontractor whose services you intend to enlist.
Since the tax laws prohibit the IRS from defining the categories of workers available today, the agency provides some general guidelines rather than explicit rules. According to the IRS, a subcontractor is a person who:
- provides services to the general public and businesses;
- supplies his own equipment, tools, and materials;
- is free to accept or refuse work;
- has more autonomy than an employee, making his own schedule and deciding how, when, and where the work is done, what equipment and tools to buy, and how much to charge clients;
- can hire employees and delegate work to others, including other subcontractors;
- is responsible for providing appropriate insurance coverage, such as public liability insurance, workers’ compensation, etc.;
- is in the position to make profit or suffer financial loss.
Conversely, an employee is a person who:
- works under the control of an employer, who directs when, where, and how the work is carried out;
- performs the duties of his or her position;
- uses equipment and materials provided by the employer;
- works a certain number of hours based on an established work schedule;
- receives a fixed salary and benefits, such as paid leave, medical insurance, retirement benefits, etc.;
- cannot subcontract work.
Tax Liability
When looking for professional Florida painters, another important aspect is tax liability. While employers are obligated to withhold and pay payroll taxes on behalf of their employees (e.g. employee’s portion of social security tax, Medicare tax, state and federal income tax, and other withholdings, such as court-ordered deductions), subcontractors are responsible for tracking and paying their own taxes on the income earned. To calculate the amount to withhold from employees’ paychecks, employers can use the income tax withholding tables from the IRS. If you work with subcontractors, you must file the form 1099-MISC for each subcontractor to whom you’ve paid at least $600 during the year. From a business perspective, contracting independent Florida painters is much cheaper than hiring your own employees.
The Dangers of Mis-classifying Workers
Classifying a person as an employee or a subcontractor has tax implications for both you and the worker. Though designating workers as subcontractors is beneficial (you’re not required to withhold, pay, and file payroll taxes for employees; you can also avoid overtime liability and workers’ compensation obligations, while reducing costs relating to equipment, supplies, working space, and training), you may end up paying huge penalties on back payroll taxes if the IRS audits you or one of your employees reports your company. To avoid penalties, fines, and even tax-evasion allegations, you must classify all of your workers according to the IRS’s guidelines.
Unfortunately, worker classification is still a gray area. However, it’s worth your full attention, considering the harsh penalties. If you doubt whether a worker is a subcontractor or an employee, you can always hire him as an employee or contact your local IRS office to ask for clarification.
