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Employees vs Contractors EBook US

Free Payroll eBooks for Small Business Owners and Startup Founders in the United States & Canada

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Page 14 of 19

Does a Contractor ever turn into an Employee after a certain amount of time? The short answer is no: not if the nature of the relationship remains unchanged for the duration of the contract / time a freelancer and client company work together. If it remains a business relationship where one provides a service to the other, then there is no natural transition from contractor to staffer. Businesses should aim to main- tain this relationship, otherwise it could cause potentially expensive problems with the IRS. Here are the guidelines the IRS uses to assess the overall nature of the relationship. Common Law Rules (IRS) Facts that provide evidence of the degree of control and independence fall into three categories: Behavioural Does the company control or have the right to control what the worker does and how the worker does his or her job? Financial Are the business aspects of the worker's job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/ supplies, etc.) Transitioning from Contractors to Employees Relationship is t he Driving Factor Transitioning from Contractors to Employees | Pg. 15

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