Determining your salary is one of the most difficult and important decisions to make when starting your business. We here at Nevada State Corporate Network consult with small business owners everyday and find the topic of salary to be the most confusing for new business owners.
We will be addressing all of the major issues dealing with employee and personal salary over the next few weeks with a series of Articles. You will learn about all of the pros and cons of each method and how to decide how and what to pay yourself.
To begin you must first decide if you are an independent contractor and have the ability to determine your own pay.
Are you an independent contractor?
The general rule is that an individual is an independent contractor if the organization for which he or she performs services has the right to control or direct only the result of the work, and not what will be done and how it will be done. You are an independent contractor when the business that pays you has no control over your methods, and is limited only to defining the specific results you must accomplish. The determination of whether an individual is an employee or independent contractor depends on the facts in each case.
Note that employees are bound by certain legal requirements and are entitled to specific benefits that are not available to independent contractors. In addition, employers are required to pay taxes on employee wages. The distinction of independent contractor from employee is critical to the IRS and your state employment and worker’s compensation authorities.
Also, understand that the criteria used to determine independent contractor status may vary significantly between state and federal agencies. In IRS Publication 1779: Independent Contractor or Employee?, the IRS lists the following criteria:
• Behavior Control: A worker is usually classified as an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done as long as it has the right to direct and control the work.
• Financial Control: Does the employer have the right to direct the financial part of the work? For example, if your have significant investment in your work and your expenses are not reimbursed, you may be an independent contractor. If you can realize a profit or incur a loss you may be an independent contractor.
• Relationship of the Parties: How do the parties view their relationship? Does the business provide insurance and paid time off? If you have these, this is an indication you’re an employee. A written contract may show what the parties intend if it the relationship is otherwise unclear.
Once you’ve determined that you are correctly classified as an independent contractor, you can address the “how do I get paid” question.
For more information on any of these services please call toll free 1-800-324-5013 to speak with one of our knowledgeable consultants at Nevada State Corporate Network between the hours of 8-5 Monday through Friday.
To Your Success,
Susan Zapper
