A Virtual Assistant (VA) is an Independent Contractor. As a small business owner you might think, “the VA is ‘employed’ by me.” You may think, “but I ‘hired’ my VA.” Terminology may be loosely used but following the letter of the law regarding Independent Contractors is key.

What’s the difference?

The Internal Revenue Service (IRS) states, “It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.”

When You Are an Employee… „

• Your employer must withhold income tax and your portion of social security and Medicare taxes. Also, your employer is responsible for paying social security, Medicare, and unemployment (FUTA) taxes on your wages. Your employer must give you a Form W-2, Wage and Tax Statement, showing the amount of taxes withheld from your pay. „
• You may deduct unreimbursed employee business expenses on Schedule A of your income tax return, but only if you itemize deductions and they total more than two percent of your adjusted gross income.

When You Are an Independent Contractor… „

• The business may be required to give you Form 1099- MISC, Miscellaneous Income, to report what it has paid to you. „
• You are responsible for paying your own income tax and self-employment tax (Self-Employment Contributions Act – SECA). The business does not withhold taxes from your pay. You may need to make estimated tax payments during the year to cover your tax liabilities. „
• You may deduct business expenses on Schedule C of your income tax return. (Ref: https://www.irs.gov/pub/irs-pdf/p1779.pdf)

In order to aid employers in determining whether a worker is an employee beyond the Common Law Test, the IRS has established 24 factors to consult for further clarification. The following chart is a comparison of the 24 factors based on employee attributes contrasted against those of an independent contractor. (Ref: http://www.hrsbdc.org/legal-issues/employee-or-independent-contractor/)

EMPLOYEE		INDEPENDENT CONTRACTOR
Must comply with employer’s instructions about when, where, and how to work		Determines place and sequence of work
Trained by employer		Train on their own
Services are part of business operations		Services may not be related to employer’s services
Work done personally		Others can do work if the contract is completed
Has assistants hired by employer		Employs own assistants
Has continuous relationship with employer		Work by the job
Work hours set by employer		Sets own hours
Works full-time for one employer		Services offered to the public
Work done on employer’s premises or designated site		Generally works off-site
Must follow set order of work		Can set own schedule
Submits regular reports		Files report when job ends; interim reports possible
Paid by the hour or salary		Paid by the job
Business and travel expenses paid by employer		Pays own business and travel expenses; part of cost of job
Tools and equipment paid by employer		Furnishes own tools and equipment
Has no investment in facilities used		Has significant investment in facilities used
No profit or loss incurred		Can make a profit or suffer a loss
Works for one firm at a time		Works for several companies at one time
Services are not generally available		Makes services available to general public
Can be fired at any time		Cannot be fired if results satisfy contract
Can quit at any time without liability		Must complete job according to contract specifications
The firm has filed a W-2 for the worker in the past		Never considered an employee
The employer’s and individual’s intent		A contract for the work to be completed
Regular payments for work (weekly, monthly)		Payment at completion of the job
An unincorporated worker		An incorporated worker

Need further information? Consult with your tax professional.