Save time with our cheat sheets, fact sheets, checklists & books!

February 20, 2009

Employee

Your Guide

Share on print
Print
Share on facebook
Share on twitter
Share on pinterest
Share on linkedin

Definition

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.

Example: Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. She works 6 days a week, and is on duty in Bob’s showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager’s approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Bob. Bob also pays the cost of health insurance and group-term life insurance for Donna. Donna is an employee of Bob Blue.

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.  See Internal Revenue Code section 3509 for additional information

Referring Cite

IRC § § 3508; 3509

Additional Helpful Information

Statutory Employees
If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute ( statutory employees ) for certain employment tax purposes if they fall within any one of the following four categories and meet the three conditions described under Social security and Medicare taxes , below.

  • A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission.
  • A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company.
  • An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done.
  • A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer s business operation. The work performed for you must be the salesperson s principal business activity. Refer to the Salesperson section located in Publication 15-A, Employer s Supplemental Tax Guide for additional information.

This information was taken from the IRS’ website www.irs.gov

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

Share on facebook
Share on twitter
Share on pinterest
Share on linkedin
Share on print
More

Keep Learning

Elective Deferral Contribution

Definition Elective deferral contributions, also known as salary deferral contributions made to SIMPLE IRAs, 401(k) plans, SARSEPs, 403(b) plans . A participant may defer up

Employer Stock or Employer Securities

Definition Employer stocks or employer securities, refers to shares of stock, bonds or debentures issued by a corporation with interest coupons or in registered form.

Be among the first to know when

IRA Rules
Change