On Pennsylvania construction sites, it is very common for some of the workers to be subcontractors. These workers are hired by the main contractor to handle specific jobs. In some cases, all workers are subcontractors. It just depends on the job being done. However, to classify a worker as a subcontractor, there are specific rules that must be followed according to the IRS. This is because subcontractors are treated differently than employees for tax purposes.
A subcontractor is a worker who is essentially self-employed. You are not paying taxes for that person as an employee. However, you cannot classify everyone as a subcontractor and bypass paying employment taxes. You must ensure that the relationship with the worker fits certain criteria.
In general, you will not oversee the worker in his or her job duties. You may contract the worker to do a specific job and even present a deadline for the work to be done, but other than that, you have little control on when he or she works and what he or she does each day. You also do not pay for supplies or tools for the worker. He or she is responsible for those things. You also are not obligated to give the worker any benefits, such as health insurance.
The IRS determines whether a worker is an employee or subcontractor based on a few factors. These include how much control you have over the worker’s behavior, the financial arrangement of the work and your general relationship. This information is for education and is not legal advice.