Whether Jackson is an independent contractor or an employee it is determined based on various factors such as the degree of control over the work, payment method, and equipment provision. In this case, since Karla maintained control over Jackson’s work, gave him day-to-day instructions, paid him hourly, and furnished all equipment, it appears that Jackson is an employee and not an independent contractor. Workers are either employees or independent contractors, depending on how much authority the employer has over them and how much autonomy they are given to carry out their tasks (Lawlor & Willey, 2017). If the employer can significantly influence the work and the employee can do little to influence the outcome, the employee is more likely to accept the employment offer (Lawlor & Willey, 2017). Being an independent contractor requires a high degree of autonomy regarding the tasks and how they are accomplished. Jackson prefers contract employment since he can choose his hours and get an hourly wage. Karla doesn’t compensate Jackson financially, but she does offer him greater creative control over his work. So, Jackson is more likely to become a contractor. Given all of the facts, the IRS will likely try to prove that Jackson is Karla’s employee.
The effect of the IRS determination of employee or independent contractor
The effect of the IRS determination that Jackson is an employee is significant. If Karla is found to have misclassified Jackson as an independent contractor, she may be liable for back taxes, penalties, and interest. In addition, she may also be responsible for paying her share of Social Security and Medicare taxes for Jackson. As an employer, Karla also has certain legal obligations, such as providing a safe work environment, following labour laws, and offering certain employee benefits that she may have yet to deliver to an independent contractor. If the Internal Revenue Service rules that Jackson is an employee, Karla will be responsible for withholding taxes from Jackson’s paycheck to cover things like his Social Security, Medicare, and unemployment benefits. If the IRS decides Jackson is an independent contractor, Karla will be exempt from paying any of these taxes on his behalf. What happens when the IRS decides whether or not a regular person is an employee or an independent contractor depends on the case details. If Karla is considered an employer, she must pay payroll taxes. If Karla is considered an independent contractor, she is exempt from payroll taxes.
References
Lawlor, L. G., & Willey, S. L. (2017). Are Your Workers Employees or Independent Contractors? Three Exercises to Help Students Accurately Classify Workers. Journal of Legal Studies Education, 34(2), 167–205. https://doi.org/10.1111/jlse.12060
