What happens if an independent contractor does not have a tax ID?
If an independent contractor doesn’t have a tax ID number on file or if the number is incorrect, they may be subject to withholding from their payments (called backup withholding – see below). 5 You may be able to check taxpayer IDs with the IRS by registering to use their e-Services process.
Is it illegal to have employees and independent contractors?
Many businesses have some employees and some independent contractors, and there is nothing improper in so doing. However, it is inappropriate to have to have one worker selling shoes on an independent-contractor basis and another similarly situated worker doing the same thing as an employee.
What are the hallmarks of an independent contractor?
One of the hallmarks of independent contractors is that they are required to supply their own tools, equipment, and supplies. Rev. Rul. 71-524, 1971-2 C.B. 346 ruled that a trucker working for a trucking company that leased vehicles (and provided maintenance) was an employee.
When to send a backup withholding notice to an independent contractor?
Usually the IRS will send this notice if the taxpayer identification number (Social Security Number, Employer ID Number, or Individual Taxpayer ID Number) of the independent contractor is incorrect or missing. You don’t have to do anything until you receive the backup withholding notice from the IRS.
Is it risky to reclassify employees as independent contractors?
But reclassifying employees as independent contractors is a risky move that might invite a payroll tax audit and ultimately cost your business much more in penalties and fines. On the other hand, reclassifying independent contractors as employees is not risk free, either.
Many businesses have some employees and some independent contractors, and there is nothing improper in so doing. However, it is inappropriate to have to have one worker selling shoes on an independent-contractor basis and another similarly situated worker doing the same thing as an employee.
What are the rights of an independent contractor?
This is because employers know independent contractors have no employment law protections. For instance, independent contractors are not entitled to reasonable notice, minimum wage, the right to refuse unsafe work, statutory holidays, or maternity leave, among other entitlements.
Can a company reduce costs by reclassifying employees?
From a simply mathematical perspective, your business’s costs could go down if the amount workers receive in direct compensation as independent contractors remained the same as what they took home in a paycheck.