Hiring Employees

Employee or Independent Contractor

An employer must generally withhold income taxes, withhold and pay social security and Medicare taxes, and pay unemployment taxes on wages paid to an employee. An employer does not generally have to withhold or pay any taxes on payments to independent contractors.

Common-law rules. To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. All evidence of control and independence must be considered. In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered.

Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties.

Additional information concerning the determination of whether an individual is an employee or independent contractor may be found on the Equal Employment Opportunity Commission website. The U.S. Department of Labor, Wage and Hour Division also provides a fact sheet on how to determine if an employment relationship exists under the Fair Labor Standards Act.

IRS help. If you want the IRS to determine whether a worker is an employee, file Form SS–8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.

Industry Examples

The Employer's Supplemental Tax Guide has detailed guidance including information for specific industries

Publication 15A     Employer's Supplemental Tax Guide

Important References

Form SS–8            Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding
Form W-9              Request for Taxpayer Identification Number and Certification
Publication 15        (Circular E), Employer's Tax Guide
Publication 1779    Independent Contractor or Employee
Publication 1976    Independent Contractor or Employee? (Section 530 Relief Requirements)