It’s a question that never goes away. In fact, the IRS is scrutinizing employee v. contractor classification even more as some clever businesses think they can avoid the upcoming penalties for not providing adequate employee health insurance coverage by just classifying these employees as independent contractors. If you’re not aware of the rules about who is considered an employee v. contractor, the IRS has some good information here.

There’s often no easy answer to this question, so be sure you can support your decision if it’s ever questioned by IRS.  IRS wants those payroll taxes, so if you’re classifying someone as an independent contractor, be prepared to defend it!

Nonprofits aren’t exempt from this issue.  In fact, IRS will nearly always reclassify an Executive Director as an employee if the organization is treating them as a contractor.  If your organization is facing an audit and your ED isn’t being treated as an employee, there may be some penalties and a amended payroll tax returns in your future.  However, there is some potential for relief from penalties if you meet certain criteria.  Let us know if you have questions about this!

Read this article for a good overview of some common myths about employee v. contractor classification.