It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.
Please see IRS – SELF EMPLOYED CENTER for additional clarifying information.
Determining Whether the Individuals Providing Services are Employees or Independent Contractors
Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.
Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be –
- An independent contractor
- An employee (common-law employee)
- A statutory employee
- A statutory nonemployee
- A government worker
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.
More information available here