IRS - DO YOU KNOW THE LAW?
Independent contractors vs. Employees
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 or an employee.
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.
It is critical that you, the employer, correctly determine 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.
Caution:
If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty.
Who is an Independent Contractor?
A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.
Independent Contractors vs. Employees
How should I report payments made to independent contractors?
You may be required to file information returns to report certain types of payments made to independent contractors during the year. For example, you must file Form 1099-MISC, Miscellaneous Income, to report payments of $600 or more to persons not treated as employees (e.g. independent contractors) for services performed for your trade or business. For details about filing Form 1099 and for information about required electronic or magnetic medial filing, refer to information returns at www.irs.gov.
Who is an Employee?
A general rule is that anyone who performs services for you is your employee if you can control what will be done and how it will be done.
Refer to Publication 15-A, Employers Supplemental Tax Guide. You may download this document by doing a search for "Publication 15-A" on the website: www.irs.gov.
Misclassification of Employees
Consequences of treating an employee as an independent contractor:
If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker.
Louisiana Law requires you to keep records on all your employees.
RS 23:14
Employers to furnish information; keeping of records.
Every employer shall furnish to the Department of Labor all information which the secretary or his representative may require. Every employer shall make true and specific answers to all questions submitted by department orally or in writing, as required by the department.
Every employer shall keep a true and accurate record of the name, address, and occupation of each person employed by him, of the daily and weekly hours worked by, and of the wages paid each pay period to each employee. These records shall be kept on file for at least one year after the date of the record.
EMPLOYER ID NUMBERS (EIN) - HOW TO APPLY
APPLY BY "EIN" TOLL-FREE TELEPHONE SERVICE
Taxpayers can obtain an EIN immediately by calling the Business & Specialty Tax Line (800-829-4933). The hours of operation are 7:00 am to 10:00 pm local time, Monday through Friday. An assistant takes the information, assigns the EIN and provides the number to an authorized individual over the telephone.
APPLY BY FAX
Taxpayers can FAX the completed Form SS-4 (found at www.irs.gov) application to their state FAX number after ensuring that the Form SS-4 contains all the required information. If it is determined that the entity needs a new EIN, one will be assigned using the appropriate procedures for the entity type. If the taxpayer's fax number is provided, a fax will be sent back with the EIN within four (4) business days. For Louisiana, fax to this number: (215) 516-3990.
When applying by mail, send Form SS-4 to this address:
Attn: EIN Operation
Philadelphia, PA 19255
Use the IRS web site at www.irs.gov to apply for an EIN online. You can perform a search for the Form SS-4 or the article number: "102767,00." An EIN will be issued after the successful submission of the completed Form SS-4 online.
"Other States" Coverage
If one of your employees is a Louisiana resident and is injured while working in another state, he has the option of filing for workers' compensation benefits in either that state or in Louisiana. In the event he/she chose to file in the other state, our policy would not apply.
If you hire residents of other states, you must secure coverage in those states.
The employer's liability portion of our policy (Section II) applies only in Louisiana. This exclusion is necessary to prevent our policy from inadvertently covering workers' compensation benefits (Section I) in other states.
For a detailed explanation regarding "Other States" Coverage refer to Louisiana Law RS 23:1035.1