As your business grows you may start asking yourself if you should hire full or part-time employees, or hire subcontractors to perform specific jobs on an as-needed basis. If you hire contract labor, your paperwork is much easier. However, just calling someone contract labor doesn’t make him/her so. If you incorrectly classify those working for you, you may end up paying substantial penalties and back taxes to the IRS and the State of Colorado.
Most individuals who work for you will be considered either common law employees or independent contractors. Unfortunately, there are many state and federal laws that are used to define an employment relationship and to determine whether an individual who performs services for you is an “employee” or an “independent contractor.” Publication 15-A, “Employer’s Supplemental Tax Guide,” has more information on determining whether an individual is an independent contractor or an employee.