I often employ dancers and instructors as independent contractors. Sometimes they are confused about submitting W-4 forms and getting a 1099 at the end of the year. I thought it would be useful to talk about what it means to be an independent contractor vs. an employee.

When someone hires you to do a job and can control what you do and how you do it, you are an employee.

For example, if I call you and ask if you can teach a Turkish class at 7:30 p.m. on Tuesdays using my curriculum, you are an employee. I am controlling what you do because I am very specific in asking that you teach Turkish. I am controlling how you do it because you must use my curriculum. If you could make up your own schedule, teach the subject of your choice, at the time of your choice, using the method of your choice, you would be an independent contractor.

When someone hires you to do a job, but is only in control of the end result and not the means or method by which is it is accomplished, you are an independent contractor.

So, if I am working as your agent and offer you a belly gram that starts at 8:00 pm., you are probably an independent contractor. Although your work hours are set by a third party, I am not dictating that. As the agent, I am not telling to dance to particular music in a specific costume. I am not providing you with or paying for transportation. I am not supplying you with music or a boom box. If I were, you would be an employee.

Another factor in assessing this case is the length of the work relationship. If it’s reasonable to assume that the pay ends with the end of the job, you are probably an independent contractor. If you are being paid by the hour regardless of how many calls came in, you would probably be an employee.

The consequences of not being paid correctly can be quite serious.

If you mistakenly classify an employee as an independent contractor, you may be liable for that person’s employment taxes plus interest even if those taxes have already been paid.There could also be heavy fines and criminal charges. If you are not sure whether people who work for you should be classified as independent contractors or employees, get form SS-8 from the IRS.

If you feel that you have been unfairly classified and are missing out on benefits because of this misclassification, you can request that the IRS determine your status by using form SS-8.

The benefit of being an employee is that your taxes are paid for you as you go. You may be offered incentives to work such as health insurance and retirement plans. The benefit of hiring an employee is that have you have a higher degree of control over when work is done and how work is done. For example, you can set the work day from 9:00- 5:00 with a half hour break. You can dictate that work must be done in a specific order.

The benefit of being an independent contractor is that you can decide which jobs to take. You dictate your hours, working conditions, and can negotiate your wages. In short, you have greater freedom. The benefit of hiring independent contractors is that it is often cheaper because you don’t have to pay their social security taxes, unemployment insurance or worker’s compensation. You don’t have to offer incentives like health insurance or retirement accounts.

It’s also easier to sever the working relationship.

There are positives and negatives to being on either side of the fence. The important thing is that the relationship between worker and payer be classified correctly for tax purposes so that you are aware of what taxes and filings you are liable for. You don’t want to be hit with penalties for being ignorant or misclassified.

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