Do you want to set fire to a pet sitting forum? Start an employment classification discussion. It's a touchy subject. Everyone is a legal expert and hears the IRS is cracking down on independent contractors (IC's). That last part could be true. I've never met anyone, but the idea underscores the importance of following employment and tax law.
I'm not a lawyer, and I won't pretend to be. However, I do have a Masters of Accounting degree and I have taken tax classes. So, we are going to focus on that part. Consult a lawyer before you make decisions that may affect your business standing.
The Internal Revenue Service Guidance on Independent Contractors
Doing anything for the purpose of avoiding taxes is a violation of the tax code. I learned this in my first tax class. You can't use independent contractors for the stated purpose of avoiding paying certain taxes. With that being said, there is a lot less administrative work when you hire independent contractors.
Staffing is a complicated subject. The Internal Revenue Service (IRS) provides guidelines. These guidelines exist to cause as much chaos and confusion as the written word allows. Here are the main considerations:
Behavioral Control over the Worker
- "Degree of Instruction means that the more detailed the instructions, the more control the business exercises over the worker. More detailed instructions indicate that the worker is an employee. Less detailed instructions reflect less control, indicating that the worker is more likely an independent contractor."
- A worker is considered an employee when there is an evaluation system in place to measure the details of how work is performed. If the evaluation system measures just the end result, then this can point to an independent contractor.
Financial Considerations for Independent Contractors
- The possibility that a worker will lose money signifies they are an independent contractor.
- "An independent contractor is free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market."
- "An independent contractor is usually paid by a flat fee for the job."
Type of Relationship You Have with Independent Contractors
- The IRS is not required to follow an employment contract. A contract stating that the worker is an independent contractor, responsible for paying his or her own self-employment tax does not mean the IRS will classify the worker as an independent contractor. How the parties work together determines whether the worker is an employee or an independent contractor."
- You can't give benefits to independent contractors.
- "If you hire a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship."
You cannot train independent contractors. To me, this is the number 1 reason a dog walking business uses employees. A trained, dedicated staff is a very valuable asset. As a result, companies in other industries invest huge sums of money into training and retaining employees. We work with animals, and they can be very unpredictable. Training is important. A dog walker or pet sitter needs specific skills in order to react to any situation in a composed and confident manner. Making good decisions under duress is a skill that comes through experience and continuing education.Certainly, you can work with independent contractors who already know what they're doing. Treat it like a business to business relationship. Some people are great pet sitters, but running the back end of their own company is not something they want to do. For this reason, they would rather have you worry about the day-to-day management activities. If you're using independent contractors, these are the type of people you'll want to find.
Are you the type of person who likes to have everything done your way or the highway? In this case, employees might be the best choice for you. In contrast, if you're able to delegate and let people work independently (get it?), you might consider independent contractors. As the clarity of IRS guidance suggests, this is muddy water. Wade carefully.