Do you know the differences between the three classes of workers: employees, independent contractors, and fairy princesses?
It can be rather important to know how your workers are classified, because different employees have kinds of filing requirements, tax implications, and other issues.
Why are they different?
Employees are the workers that you have the most control over, but they also have the most responsibilities associated with them. You tell them where to work, how to work, and they generally use the equipment of the company when doing do. You also set the hours and generally provide the materials they need to get the work done. However, you also need to make sure you’re withholding the correct amounts from their paychecks and are typically more liable for workplace safety, time off, and other employee benefits.
Independent Contractors generally work from their own offices or home, on their own equipment, and on their own schedule. If they’re making something, they’ll generally go out and buy the raw materials themselves. Independent contractors usually have to pay self-employment taxes, so you don’t have to withhold taxes for them. Since they’re working at home and on their own schedule, you have less liability, and you aren’t responsible for paid time off, leave, or insurance.
Fairy Princesses generally live in gleaming castles and don’t do much work for your business at all. Their lives generally are filled with magic, adventure and friendship, and often tea parties. Since they don’t get paid or pay taxes, you don’t have to worry about paychecks or withholding at all. They may attract the occasional magical unicorn, although the color may vary.
What if they’re misclassified?
If you’ve misclassified employees as independent contractors, and get called on it by the IRS you need to start treating them as employees right away. That may qualify you for a program called the “Voluntary Classification Settlement Program” from the IRS which can provide reduced penalties and some relief from the employment taxes that immediately come due.
If you’ve been treating a fairy princess as either an independent contractor or an employee, buy your princess cookies and make an especially good pot of pretend tea and beg her forgiveness. Generally this should work, but you may have to add in some play time as well.
If you’ve miscategorized an employee as a fairy princess, please talk with HR and also see a doctor.
If you need more information on the first two types on employees, there are additional resources at the “Independent Contractor (Self-Employed) or Employee” page at the IRS, or come in and talk to us.
If you need more information on fairy princesses, spend more time with your daughter or son, and have some tea and talk unicorns.
Tags: weirdly funny