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Record Keeping

Before you pay anyone for work they have done for your company, you must define the business relationship between yourself and the person performing the services, This relationship determines your responsibility for withholding and paying taxes based on those payments.

Generally, you must withhold income tax, withhold and pay social security tax, and pay unemployment tax on wages paid to an employee. Normally, you don’t have to withhold or pay taxes based on payments made to an independent contractor. However, if you pay an independent contractor $600.00 or more during a year, you must file Form 1099-MISC, “Statement of Recipients Miscellaneous Income”.

Most States have their own set of guidelines determining an Employer/Employee relationship, and they may vary from those of the Federal Government. You should check both sets before making a decision. Federal and State laws pertaining to minimum wage may overlap in some areas. The key thing to remember is that if both sets of laws apply, use the regulations which are more favorable to the employee. In other words if the minimum wage set by your State is higher than the Federal minimum, you must meet the State-Mandated minimum.