Employee or Contractor?
One of the largest expenses in your nonprofit is payroll and all that goes with it. In addition to payroll, you also have to pay payroll taxes, unemployment, leave, insurance benefits, and training.
On more than one occasion, a client has wanted to switch an employee to an independent contractor in order to save money. However, that decision is not mine or even yours to make. The Internal Revenue Service (IRS) determines the difference here in a more extensive definition while the Department of Labor only uses 6 determining factors here.
Like my clients, I am sure you do not have time to research the difference or read the monstrous qualifications detailed by the IRS. Therefore, I am going to give you my version of the difference in these top 3 points:
- Do you make all of the decisions? If you are the one that tells the individual what to do, when to do, and how to do it, then you have behavioral control and the individual is most likely an employee. Imagine calling an HVAC technician to fix your air conditioner. Upon arrival, you began to instruct the technician on how to fix the air conditioner and you also determine how much you are going to pay the individual. The technician would be an employee not a contractor.
- Are you their only client? If you are the one that determines how the individual gets paid, when, and for how long, you have financial control and the individual is most likely an employee. In most cases, contractors have multiples jobs simultaneously. If the individual performs this type of work for you only, it is much harder to prove their work is that of a contractor.
- Are you assuming all responsibilities such as contract terms and workers compensation? If you decide the length and details of the contract, you have relationship control and the individual is most likely an employee. Continuing with the HVAC example above, the individual would most likely have their own workers compensation or some form of liability insurance because of the type of work they have.
You work too hard to achieve your mission to take shortcuts with the Department of Labor or the IRS. Use these tips to determine whether to pay now or pay later. We are here to help you decide employee or contractor before the IRS decides for you!
There are many roles or positions that you can outsource – payroll, accounting, HR . . . If you’re looking at operating leaner and trying to determine between contractor or employee, call us to help you assess your organization and what makes sense for you and your mission.
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