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Last Updated: 9/15/2017

Classifying a Worker

As a business owner, it is important you and your workers understand if they are employees or if they are independent contractors so you can withhold employment and income taxes when required.

The degree of control and independence in your relationship determines if a worker is an employee or an independent contractor. A number of factors are considered, and they fall into three broad categories:
1. Behavioral Control: Do you (the business) have a right to direct or control how the work is being done? This may happen through instruction, training, or other means.
2. Financial Control: Do you have a right to direct or control the financial and business aspects of the worker’s job?
3. Relationship of the Parties: How do you and the worker perceive your relationship?
It can be hard to determine if someone is an employee or an independent contractor. No one factor alone defines the relationship. All factors must be weighed. Some factors may indicate the worker is an employee, while others indicate they are an independent contractor. For additional information:
 If you or your worker have considered the above factors and are still unclear of the classification:
  1. Complete federal Form SS-8 and submit it to the IRS. You or your worker may submit the form. 
  2. Send a copy of the completed form to us.
  3. Once you receive a determination from the IRS, send us a copy of the determination.  

Liability for misclassified workers

If an employee is incorrectly classified as an independent contractor when there is no reasonable basis, the business is liable for state employment taxes for the worker. The tax is equal to 3 percent of the misclassified workers' compensation, plus any additional penalties and interest that apply.