Changing from Contractor to Worker

In some unspecified time in the future, you may have to convert an unbiased contractor to an worker.

You may need labored with a contractor a number of instances, however now you need to rent them as an worker. For instance, you may need used an unbiased contractor to periodically help with your corporation’s advertising and marketing, however now you need to rent them as an worker who completely works for you.

Or, you may need misclassified an worker. You labeled a employee as a contractor when you need to have labeled them as an worker. If this occurs, it’s good to convert them instantly.

Learn to convert unbiased contractors to workers beneath.

Changing from contractor to worker

Use the next steps to transform your contractor to an worker.

1. Confirm employee classification

First, it’s good to be sure that the contractor actually needs to be an worker. Consistently switching a employee’s classification may give the IRS incentive to audit you.

To find out if a employee is a contractor or worker, use the IRS three-prong check. For those who’re nonetheless unsure how one can classify a employee, you’ll be able to file Type SS-8 with the IRS. The IRS will ship you a dedication about how one can classify your worker.

With contractors, you employ the 1099-MISC kind to report their wages. You don’t withhold or contribute taxes on their wages. As an alternative, the contractors pay the taxes themselves.

With workers, you employ Type W-2 to report their wages. You have to withhold and contribute taxes on their wages.

Switching from contractor to worker means switching from Type 1099 to Type W-2.

Need to study employee misclassification?

Obtain our free information on unbiased contractors vs. workers for extra info.

2. Notify the employee

As quickly as you resolve to transform the contractor to an worker, notify the employee. Ideally, inform the employee in writing. A written memo is simpler to trace and doc than a verbal message.

Doc the date you notify the employee. For those who mail the notification, receive proof of mailing.

3. Collect worker info

You could begin an worker file and acquire employment info to fill it.

For instance, have the employee fill out Type W-4, Worker’s Withholding Certificates. You and the worker must also fill out Type I-9, which verifies their eligibility to work within the U.S.

You must also add details about the worker’s pay to their file. It will embrace objects like their price of pay, whether or not they’re hourly or wage, whether or not they’re exempt or nonexempt, and their pay frequency.

4. Alter payroll

You could add your new worker to your payroll and time and attendance software program.

Add the worker to your payroll so you’ll be able to pay them correctly and on time. It’s best to enter their pay price and pay frequency. If the worker ought to obtain extra time wages, be sure to mark them as nonexempt.

Be certain the worker has entry to your time clock, if you happen to use one.

5. Deal with the worker equally

It’s best to deal with the transformed worker the identical as another worker.

For those who give advantages to the remainder of your workers, you must also provide advantages to this new worker. For those who provide paid day without work, this worker ought to obtain it as properly. In fact, you need to observe your established insurance policies.

6. Distribute Type W-2

You have to give workers a Type W-2 after the top of every yr. Type W-2 reviews their wages for the yr, together with how a lot of every tax you withheld from their wages.

Ship the shape to the worker by January 31. You have to additionally ship this manner to the Social Safety Administration.

Issues to be careful for

If a contractor ought to actually be an worker, it’s essential to convert them.

Changing from contractor to worker may trigger the IRS to flag your corporation for an audit. For those who’ve finished nothing flawed, you don’t have anything to fret about. Nevertheless, if you happen to misclassified a employee as a contractor when they need to have been an worker, there could also be penalties.

Since you don’t pay taxes on contractor wages, you could owe taxes on the wages beforehand paid to the employee. You may also should pay curiosity and penalties.

For those who can present an affordable foundation for treating the worker as a contractor, you may have the ability to keep away from paying employment taxes. Publication 1976, Part 530 has extra info.

You may also qualify to make use of the Voluntary Classification Settlement Program (VCSP). This program helps you to reclassify staff with partial tax aid.

When you could have workers, you want an environment friendly option to pay them. Patriot’s payroll software program for small enterprise is designed to save lots of you money and time. Begin your free trial right now.

This text has been up to date from its authentic publication date of June 25, 2018.

This isn’t supposed as authorized recommendation; for extra info, please click on right here.