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While
independent contractors mean lower payroll costs, be advised that the IRS
scrutinizes this whole area very carefully. It wants to make sure your
workers are properly classified and paying the government the necessary
income and payroll taxes that are due.
To
stay out of hot water with the IRS, be sure the workers you classify as
independent contractor. The IRS has a 20-point test its auditors use to
determine the proper classification. Here are some of the major points:
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Who
has control? A worker is an employee if the person for whom he works
has the right to direct and control him in the way he works, both as to
the final results and as to the details of when, where and how the work
is done. The employer need not actually exercise control; it's
sufficient that he has the right to do so.
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Right
to fire. An employer can fire an employee. An independent contractor
can't be fired so long as he or she produces a result that meets the
specifications of the contract.
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Training.
An employee may be trained to perform services in a particular
manner. Independent contractors ordinarily use their own methods and
receive no training from the employer.
Excerpted
from Start
Your Own Business
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