Limo Companies: Independent Contractors vs. Employees, Part 1

Wolpert Insurance owner, Robert Mucci, has put together a great article that discusses the independent contractors versus the employees in the livery business. Over the next few weeks, we will be discussing a few of his main points from the article.

As the limousine industry grows, many operators continue to staff up, adding additional operators to the team. However, there is one question at hand for many limousine business owners: should the new employees be classified as independent contractors or employees?

It pretty much comes down to economics when making such a decision. If you consider your hire an employee, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid. However, when an individual is classified as a contractor, you generally DO NOT have to withhold or pay any taxes on payments. It is these things that generally affect the definition of an employee, but be careful. Some federal and state statutes have failed to clearly define the term “employee.” This is where the confusion begins!

According to the IRS website, “Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be:

• An independent contractor

• An employee (common-law employee)

• A statutory employee

• A statutory nonemployee
In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.”

Because this subject has continued to be controversial, the IRS issued a specific employment-related guideline in March of 1997 which discussed the classification of workers in the limo industry (dispatch and transport). Be sure to come back next week to learn more about both of these services!

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