Independent Contractor Checklist

July 24, 2015

Is one of your medical practice vendors an independent contractor or a statutory employee? Use this checklist to find out.

To download this worksheet, click here: Independent Contractor Checklist

Is That Person Really an Independent Contractor?

Employee Classification is a very real and relevant responsibility for every medical practice. Many people assume it is easiest to classify their workforce as contract labor, perceivably saving them “employer match percentages” (for W-2 Social Security and Medicare withholdings), federal and state tax withholdings, unemployment insurance premiums, Worker’s Compensation costs, state disability programs, plus added administrative burden of calculating, depositing and reporting pay-related taxes.

The IRS estimates that it loses approximately $4 to $20 billion per year in unpaid taxes as a result of this misclassification problem. No wonder there are two new questions on IRS tax returns this year:

Did the “you” make any payments in 2011 that would require it to file Form(s) 1099?

If “Yes,” did the “you” file or will file all required Forms 1099?

Failure to correctly label workforce relationships will greatly increase a business’s risk of exposure and penalty from government agencies. A single IRS or state unemployment audit that uncovers the misclassification of workforce can result in repayment of back taxes plus interest, even additional penalties if the IRS feels that a responsible person (anyone with authority over the financial affairs of a business) exhibited negligent or fraudulent behavior. Auditors are allowed to go back three years to uncover the full extent of unpaid taxes.

So, what determines a W-2 employee from a 1099 contractor? A worker is an employee if the person for whom they work has the right to direct and control the way they work; i.e., how the work is to be accomplished and what the final result is of their activity. Here are 20-points that have been established by the IRS:

1. Must the individual take instructions from your management staff regarding when, where, and how work is to be done?
2. Does the individual receive training from your company?
3. Is the success or continuation of your business somewhat dependent on the type of service provided by the individual?
4. Must the individual personally perform the contracted services?
5. Have you hired, supervised, or paid individuals to assist the worker in completing the project stated in the contract?
6. Is there a continuing relationship between your company and the individual?
7. Must the individual work set hours?
8. Is the individual required to work full time at your company?
9. Is the work performed on company premises?
10. Is the individual required to follow a set sequence or routine in the performance of his work?
11. Must the individual give you reports regarding his/her work?
12. Is the individual paid by the hour, week, or month?
13. Do you reimburse the individual for business/travel expenses?
14. Do you supply the individual with needed tools or materials?
15. Have you made a significant investment in facilities used by the individual to perform services?
16. Is the individual free from suffering a loss or realizing a profit based on his work?
17. Does the individual only perform services for your company?
18. Does the individual limit the availability of his services to the general public?
19. Do you have the right to discharge the individual?
20. May the individual terminate his services at any time?

In general, “yes” answers to questions 1-16 and “no” answers to questions 17-20 generally indicate a W-2 employee. “No” answers to questions 1-16 and “yes” answers to questions 17-20 generally indicate an independent contractor.
Tenley Wood, ADP,, 281-702-4107

To download this worksheet, click here: Independent Contractor Checklist

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