Converting from Contractor to Employee | How To

At some point, you might need to convert an independent contractor to an employee .
You might have worked with a contractor several times, but now you want to hire them as an employee. For exercise, you might have used an independent contractile organ to sporadically assist with your business ’ second marketing, but nowadays you want to hire them as an employee who permanently works for you .
Or, you might have misclassified an employee. You labeled a worker as a contractor when you should have labeled them as an employee. If this happens, you need to convert them immediately .
Learn how to convert independent contractors to employees below.

Converting from contractor to employee

Use the follow steps to convert your contractor to an employee .
Infographic: How to convert an independent contractor to an employee

1. Verify worker classification

first gear, you need to make certain that the contractor truly should be an employee. constantly switching a actor ’ s classification might give the IRS incentive to audit you .
To determine if a proletarian is a contractor or employee, use the IRS three-prong test. If you ’ re placid not certain how to classify a proletarian, you can file Form SS-8 with the IRS. The IRS will send you a determination about how to classify your employee .
With contractors, you use the 1099-MISC form to report their wages. You do not withhold or contribute taxes on their wages. alternatively, the contractors pay the taxes themselves .
With employees, you use mannequin W-2 to report their wages. You must withhold and contribute taxes on their wages .
Switching from contractor to employee means switching from Form 1099 to Form W-2 .

2. Notify the worker

a soon as you decide to convert the contractor to an employee, notify the actor. preferably, tell the worker in writing. A written memo is easier to track and document than a verbal message .
Document the date you notify the actor. If you mail the notification, obtain proof of mailing .

3. Gather employee information

You need to start an employee file and collect use information to fill it .
For exemplar, have the proletarian fill out Form W-4, Employee ’ s Withholding Certificate. You and the employee should besides fill out Form I-9, which verifies their eligibility to work in the U.S .
You should besides add information about the employee ’ s pay to their file. This will include items like their rate of give, whether they are hourly or wage, whether they are nontaxable or nonexempt, and their wage frequency.

4. Adjust payroll

You need to add your new employee to your payroll and time and attendance software .
Add the employee to your payroll so you can pay them properly and on clock. You should enter their yield rate and pay frequency. If the employee should receive overtime wages, make certain you mark them as nonexempt .
Make sure the employee has access to your clock time clock, if you use one .

5. Treat the employee equally

You should treat the converted employee the lapp as any other employee .
If you give benefits to the respite of your employees, you should besides offer benefits to this newly employee. If you offer paid time off, this employee should receive it arsenic well. Of course, you should follow your established policies .

6. Distribute Form W-2

You must give employees a Form W-2 after the end of each class. Form W-2 reports their wages for the year, along with how much of each tax you withheld from their wages .
Send the form to the employee by January 31. You must besides send this form to the Social Security Administration .

Things to watch out for

If a contractor should in truth be an employee, you must convert them .
Converting from contractor to employee might cause the IRS to flag your clientele for an audit. If you ’ ve done nothing ill-timed, you have nothing to worry approximately. however, if you misclassified a worker as a contractor when they should have been an employee, there may be consequences .
Because you don ’ deoxythymidine monophosphate give taxes on contractile organ wages, you may owe taxes on the wages previously paid to the proletarian. You might besides have to pay matter to and penalties .
If you can provide a fair basis for treating the employee as a contractor, you might be able to avoid paying use taxes. issue 1976, incision 530 has more information .
You might besides qualify to use the voluntary Classification Settlement Program ( VCSP ). This course of study lets you reclassify workers with overtone tax relief.

When you have employees, you need an efficient means to pay them. Patriot ’ s payroll software for minor business is designed to save you clock and money. Start your rid trial nowadays .
This is not intended as legal advice ; for more information, please chatter here .

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Category : Finance

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