Guide to Starting and Operating a Small Business | 2018 Guide to Starting and Operating a Small Business - Page 75

• An individual who works at home on materials or goods that you supply and that must be returned toyou or to a person you name, if you also furnish specifications for the work to be done. • A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer’s business operation. The work performed for you must be the salesperson's principal business activity. Refer to the Salesperson section located in Publication 15-A, Employer's Supplemental Tax Guide (PDF) for additional information. • A statutory non-employee. There are three categories of statutory nonemployees: direct sellers, licensed real estate agents and certain companion sitters. Direct sellers and licensed real estate agents are treated as self- employed for all Federal tax purposes, including income and employment taxes, if: • Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked, and • Their services are performed under a written contract providing that they will not be treated as employees for Federal tax purposes. • Companion sitters who are not employees of a companion sitting placement service are generally treated as self-employed for all federal tax purposes. Refer to information on Statutory Nonemployees located in Publication 15-A, Employer's Supplemental Tax Guide (PDF) for additional information. How do we determine if an individual is an employee or Independent Contractor? In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered. Common Law Rules Facts that provide evidence of the degree of control and independence fall into three categories: • Behavioral: Does the company control or have the right to control what the worker does and how the worker performs his or her job? • Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) • Type of Relationship: 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? Businesses must weigh all these factors when determining 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. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination. Form SS-8 If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF) can be filed with the IRS. https://www.irs.gov/pub/irs-pdf/fss8.pdf The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status. Be aware that it can take at least six mo