As an employer, you have responsibility for compliance with several important laws and regulations. You must withhold federal and state income taxes, pay for unemployment and workers’ compensation insurance, and withhold and match Social Security (FICA) taxes. You are required to obtain certain information about your employees for various government agencies including the Internal Revenue Service (W-4 form) and the Immigration and Naturalization Service (1-9 form). Regular reports must be completed and returned to each agency with which you deal.

This table shows the most common requirements and the agencies responsible:

Employee or Contractor? How To Tell the Difference

Employee:

  • Individual follows instructions about when, where and how to perform the work
  • Receives training from the employer
  • Required to perform the work in person (may not sub-contract)
  • Uses assistants supplied by the employer
  • Has an ongoing work relationship with the employer
  • Fixed hours of work
  • Full-time work status
  • Works at employer’s location
  • Subject to the work flow
  • Routines and schedules of the employer
  • Required to provide regular progress reports
  • Paid on an hourly, weekly or monthly basis
  • Paid for expenses
  • Uses company’s tools and equipment
  • Restricted to working exclusively for that employer
  • Can quit or be discharged

Independent Contractor

  • Worker is paid on a lump-sum basis
  • Provides his or her own tools and equipment
  • Works “off-site” without supervision
  • Significant investment in his or her own work facilities
  • Realizes a profit or a loss from the work activity
  • Has multiple clients
  • May not quit or be discharged without liability for completing a contract for work
  • Form 1099 must be filed for each independent contractor or whomever you paid over $600 during the year

For more information, see IRS Publication 344, Tax Guide for Small Business, or call Colorado Unemployment Insurance Liability Unit at 303-839-4922.