It is critical that you, the business owner — perhaps with the help of your corporate attorney — correctly determine whether the individuals providing services are employees or independent contractors. For the most part, the employer must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. A company does not have to withhold or pay any taxes on payments to independent contractors.
The person performing the services may be an independent contractor, an employee (common-law employee), a statutory employee, or a statutory non-employee. This all depends on the facts and circumstances at hand. Facts that provide evidence of the degree of control and independence fall into three categories: Behavioral Control, Financial Control, and Type of Relationship, which can be determined by answering:
1. Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Are the business aspects of the worker’s job controlled by the employer/contractor (including, among other things, how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)?
3. Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
A New York company needs to evaluate all of these factors in order to determine whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. Unfortunately, there is no clear line that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination.
If you have questions or need help in Determining Whether Your New York Business has Employees or Independent Contractors, it is best to discuss your concerns with a New York Business Attorney.