The great debate: employee vs. independent contractor

Employee or independent contractor? Attorney Rush Nigot warns us about making the mistake of treating employees as independent contractors. It’s an issue about which the IRS has sacked the NFL and caused Microsoft to reboot. Penalties and interest can pile up if someone is incorrectly treated as an independent contractor. And in the case of a retirement plan, the employer would have to make up the benefits the individual would have received as an employee. And it can be expensive.

But what if you do make a mistake, and that independent contractor is really an employee. How do you fix it? Here’s how. There’s two aspects to the fix. From the payroll tax standpoint, Accounting Web provides valuable tips for reporting misclassified employees (registration required). And from a retirement plan standpoint, you can use one of the correction programs offered by the Internal Revenue Service as part of their Employee Plans Compliance Resolution System (EPCRS). Better to get to them before they get to you.