It’s no secret that every growing business needs help. When you hire a worker, you may not know if they are a contractor or an employee. You might think that it’s easier and more affordable to hire workers as contractors. This is one of the most common misconceptions out there. You’ll save a lot of money by knowing the difference and what to do in both cases.

Let’s start with a few questions about the “worker”

• Do they use your equipment or tools?
• Do you determine their schedule?
• Do you manage them and tell them how to do their job?
• Do you provide benefits like medical insurance or paid time off?

Did you answer yes to all?

Congratulations, you definitely have an employee! This is a great time to reach out to an expert to help you understand your responsibilities. Our team members are payroll experts and can help get you started.

Or no/not sure? Let’s go over a few more questions to narrow it down

• Do they send you an invoice?
• Do they have their own employees?
• Do they have other clients/customers?
• Do you have a contract with them for a specific project?
• Are they operating as a business: a website and branding?

If the answer to any of these is yes, they may be a contractor. For more info on worker classification in Washington State, check out the Department of Labor and Industries. It’s a great resource with some easy-to-understand guidelines. You can also seek the counsel of an accountant to help determine a worker’s status.

So, what happens if you treat a worker as a contractor, but they qualify as an employee?

• Hefty penalties from payroll agencies, like the IRS.
• Sticky legal situations with customers or workers.
• Lack of important coverage for workers if they become injured or need sick time.
• Damage to your reputation as an employer.

If they are a contractor, you must issue a 1099-NEC by January 31 of next year if you pay them at least $600 during the calendar year. This will allow you to take the deduction as a business expense with the IRS. First, you’ll need some of their tax information. Here’s a form W-9 to give them as soon as you hire them. Super Hot Tip: It’s best to get this completed form before you pay them.

Get the expertise you need

No matter what states or cities your business and people operate in, you’ll always want to make sure that you’re in compliance with any agencies in those jurisdictions. There are often additional rules or special exemptions for some industries, so it pays to do the research before you hire!

Check out the services we offer and get in touch if you’re interested in working with a team of payroll and accounting experts.