Independent Contractor or Employee?

The courts distinguish between an employee, defined in s.248(1) of the Income Tax Act, hereafter, ITA, as the “position of an individual in the service of some other person”. An independent contractor, is someone with a “contract for service.” The case that considered an employee versus and independent contractor was Wiebe Door Service Ltd. v M.N.R. In this case, the applicant owned a door instalment business and had a number of contractors that worked for them. The contractors were responsible for their own taxes, workers compensation and unemployment insurance. However

From the information that was provided, the income was derived from the business and this gross income is taxable pursuant to Code§1.61-3(a). He is subject to self-employment tax, since the total amount of income that will come through to his personal tax income of half of the self-employment tax liability.

With regards to constructive receipt, Treasury Regulation sec. 1451-2(a) states that income is constructively received by a taxpayer when it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions. The question now is whether Adrian faced substantial limitations or restrictions as defined by the tax law. The regulation does not provided an example specifically addressing Adrian's situation that would allow us to reach a conclusion.

All else equal, taxpayers are more likely to be classified as employees rather than independent contractors if they are allowed to determine their own working hours and work without frequent oversight.

Smith, CPA, is a partner of Johnson Accounting Firm. Johnson audited the books of Hometown Bank. Smith’s independence would be impaired under which of the following circumstances?

In order to determining how the $300,000 fee was received as Federal income on the part Mrs. John Smith, we first have to determine the requirements for income. According to Code Sec. 61(a)(1) of the Internal Revenue Code (IRC) “gross income includes all income from whatever source derived,” that is including the following items: compensation for services, including fees, commission, fringe benefits and similar items (Intuit-TaxAlmanac, 2006). In John’s case, income received from fees that were paid by his client from rendered services will meet that requirement of gross income. Under Section

When an independent contractor earns compensation for providing services or doing work and is classified as a self-employed individual rather than an employee, this is considered to be independent contractor income. This type of income will listed on Form 1099-MISC, which is where other types of income is listed.

New Jersey courts define an independent contractor as one who “contracts to do a piece of work according to his own methods, and without being subject to the control of his employer as to the means by which the result is to be accomplished, but only as to the result of the work.” Cappadonna v. Passaic Motors, 136 N.J.L. 299, 300, (Sup. Ct. 1947), aff'd, 137 N.J.L. 661 (1948). There are two tests used to determine whether an employee was an independent contractor: (1) the control test and (2) the relative nature of the work test.

Businessdictionary.com (2015) states that a contingent worker is a "Temporary employee who is (1) hired for contingent work, (2) paid according to hours worked, and (3) draws no benefits that are commonly available to the regular employees”. The contingent workforce consists of temporary, part-time, independent contractors, seasonal, college interns, and leased workers. Often confusion is present in labeling employees and independent contractors accurately. According to the IRS (2015) an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done (IRS, 2015).

Self employed - if you are not employed in a contract of employment with an employer but contracted to provide services other a period of time for a fee or be a business in your own right. Therefore a person will work for themselves rather than a employer. You do not have employment rights but have to pay your own income tax and national insurance contributions.

A ‘self-employed’ temporary worker, works for themselves and is responsible for their own NI and tax contributions, whereas with a ‘worker’ is paid directly by the employer or agency, who will be responsible to tax deductions.

As there are so many different employment status types, it is important to determine the status as “employers will be exposed to the majority of employment rights only if the 'working person' can prove they are an employee rather than self-employed.” (CIPD, www.cipd.co.uk, Why is employee status so significant and what legislation covers it?, 24th Sept 2014.

IRS (2011) Employee vs. Independent Contractor – Seven Tips for Business Owners. http://www.irs.gov/newsroom/article/0,,id=173423,00.html Last accessed January 3, 2012.

Riggers Inc (“Riggers, “client, or “Company”) is audited by Stone LLC CPA firm (“Stone” or “auditor”). The Compa” ” ny builds and owns offshore drilling rigs. Riggers is a US-based corporation that recently expanded its operations into Brazil (the only foreign-based operations for Riggers). As a result of this expansion, the client has encountered two complex issues related to accounting for income taxes. During the 2012 year-end audit, the auditors must use professional judgment with regard to these two income tax accounting issues. The first issue relates to

1. Consider Exhibit 10 on page 22 of the case; does it include the factors you consider most important in the selection process? Which factors would you be inclined to weight most heavily?