3990 Minton Road Melbourne, Florida

Are You Really A Sub Contractor ?

Taxation & Business Specialist | Melbourne, Florida

Are You Really A Sub Contractor ?


Hardworking individuals and business owners try to find various ways to avoid the extra cost of employee/employer payroll taxes, (approximately .153 per cent of your gross wages) and other payroll expenses such as employee income tax withholding worker’s compensation and unemployment insurance premiums adding approximately another 8 to 10 percent in payroll cost to both the employee and the employer.

The Federal Government dictates that the more control an employer has over employee the more profound is the employer/employee relationship. The Government (IRS) relies on that relationship to commit each party to their employee and employer tax payment responsibilities. The Government relies specifically on relating controlling factors, in determining if you are an employee, an or an employer subject to paying payroll taxes and all their related payroll expenses. Moreover, the greater the control that exists, the higher chance that you in a employer/ employee relationship and not a sub-contractor/vendor relationship. So, I have taken the liberty to alert you, dear readers, on IRS evaluation factors set by the Federal Government, when it comes to examining those sub-contractor relationships. Keep in mind, the objective by the Service is to reclassify a subcontractor/vendor client relationship back to an employee/employer relationship to support tax revenues.



The very first thing to address with this evaluation is: Are you a separate and distinct entity; defined as: An S or C Corporation, a Limited Liability Company (LLC) or another structured such as a Partnership or Joint Venture, formally established with the State with a business Federal Identification Number. Additionally, this separate and distinct entity, must have entered into a written contract and or a business agreement with the vendor or client to perform specific business services or skills. Lastly and above all, in this contractual relationship, you are not an individual or sole proprietorship but rather a separate and distinct entity.

Although you are a separate and distinct entity, keep in mind that the extent of control by which a vendor or client has over an individual worker or entity may be judged by the Government. The extent of control that the vendor or client has the ability to exercise over the details of the work to be formed is another key factor in determining the relationship.

The following factors are also considered:

  • Whether the one contracted is a formal entity or an individual engaged in a distinct occupation or business contrary to the vendor or client.
  • Whether the work done in a certain locality is usually done under the direction of the vendor or client or by a specialist without supervision.
  • Are the skills required in the particular occupation, different to that provided by the vendor or client?
  • Does the vendor or the client supply any equipment, vehicles, materials, tools, and a place to work.
  • The length of time involved with the contract or agreement to provided skill and/or services. Is it perpetual, or sporadic intervals between jobs and performances.
  • A crucial Federal reclassification trigger, is, the method of payment. Were you paid by the time or by the job and who was the check written to, an individual or an entity?
  • Was the work performed the routine work of regular day to day business of the client or vendor?
  • Whether the parties really believe that they are creating an independent contractual relationship

A 1099 Contractor Agreement can help employers establish their relationship with contractors by having a formal document in writing that will protect them from the state re-classifying their contractors as employees.

For more information check out www.IRS.gov/ for instructions and Form SS-8 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Contact our Management Specialists for Assistance.

Unsure about your status as an employee or a 1099 Contractor? Reach out to our management specialists for a consultation. Give us a call at 321-951-7626, email us at [email protected] , fax us at 321-723-8218 or contact us here. We look forward to working with you!

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