Who Qualifies as an Employee?

The proliferation of contractors, freelancers and consultants can blur the definition of who qualifies as a company employee. For tax purposes it is important that you understand which individuals are considered your employees by the IRS, regardless of common terms such as "consultants" or "contractors." Typically, an individual is considered an employee if he or she meets several requirements including, but not exclusive to:

Receiving his or her primary income through working for your business

Receiving direction from you on a regular basis

Having his or her pay rate controlled by your decisions

Being specifically trained to perform tasks or jobs for your company

Working on your schedule, in your facilities and not having a business location of their own

Receiving benefits from your company

Together these criteria can indicate, by IRS definition, that someone is considered your employee.

Non-employees, doing work for your company, including all independent contractors, freelancers and consultants, who earn over $600 in a given year from your business, are required to receive an IRS Form 1099. The form will state the amount of money earned from your business during the calendar year. You are not required to withhold any money, and the independent contractor is, therefore, responsible for reporting the income on his or her own personal tax return.