Whether you’re trying to determine if your auction services categorize you as an independent contractor or employee, or if you’re struggling to find out under which category a new hire falls, the IRS now provides more easy-to-follow guidelines in Publication 1779.
Worker classification can affect how auction professionals report income tax, social security and other taxes. It determines how tax forms should be filed, and it ensures government benefits are earned and distributed properly.
The IRS says the determination of whether a worker is an independent contractor or employee falls into three categories: 1) behavioral control; 2) financial control; and 3) relationship of the parties.
Do you or does somebody direct you to do the work that is to be done while at auction? If someone controls an auction professional in this way, then the worker is likely an employee.
Now, an employee must receive extensive instruction on how he or she is to perform the work; however, the employer doesn’t have to “direct or control the way the work is done,” according to the IRS.
An auction professional could be an employee in these situations:
– He or she is told how, when or where to do work
– Instructions are given on tools and equipment to use
– The employee is instructed to use certain assistants
– Employers ask that specific stores or companies be used for purchasing supplies or services
Less extensive instruction — for example “what should be done, but not how it should be done” — could make an auction professional an independent contractor.
Another important behavioral control is training. Employees might get training on procedures and methods so that work is done in a certain way, while contractors would not receive extensive education for required job performance.
Next, financial control is a little more specific.
An auction professional would be an independent contractor if he or she had one or more of the following:
– A substantial investment in the work, though there is no set dollar amount
– Business expenses that are not reimbursed, especially if they are significant costs
– The risk of profit or loss
Relationship of the parties
Finally, if a worker is provided benefits such as insurance or paid leave, he or she is likely an employee. Those who don’t receive benefits could be employees or independent contractors.
The IRS suggests that in cases in which it’s difficult or impossible to determine a worker’s classification, it might be a good idea to have a written contract that shows the intention of the auction professional and hiring organization.