For photography business owners (and any small business owner), having people on your team is a natural part of growing your business. Whether you have other photographers shooting with you, people editing your images, or someone handling administrative work, it’s likely that at some point you’ll pay someone else to do work for you.
The biggest question, then, is whether these people are employees or contractors. There are two primary considerations you should be aware of before deciding.
- Tax implications based on your decision.
- How this decision affects your working relationship with team members.
Hiring an employee means withholding state and federal income tax, Social Security tax, and Medicare taxes. In most situations, you also pay unemployment taxes too (there are some exceptions).
Hiring an employee means paperwork! You’ll need a W-2 and an I-9 completed for each employee, records of their wages and hours, documentation that you’re complying with federal labor regulations, and the ability to file returns.
The cost, paperwork and workload for hiring independent contractors is vastly different from hiring employees. When hiring contractors, you usually file a 1099-MISC form for any contractor that is paid more than $600 a year for performing contracted services. You don’t withhold taxes, and there’s much less paperwork. For those reasons, photographers often hire anyone who does “anything” for them as a contractor. Unfortunately, the IRS has a more strict definition of which is which!
Facts that provide evidence of the degree of control and independence fall into three categories:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (These include things like how a worker is paid, whether their expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee benefits (pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the individual performing a key function of the business?
Speaking of the IRS, if you have a question about whether someone qualifies as an employee or a contractor, you can ask the IRS for a determination of the worker’s status, using form SS-8. It’s worth asking if you’re not sure. Afterall, failure to classify a worker appropriately can result in big penalties. If you missclassify an employee as a contractor, you can end up paying taxes AND penalties!
A good guideline is: if you’re “hiring” someone to work “for you” in your studio, then they’re probably an employee. Classify them correctly to avoid penalties.
To dig deeper into Tips for Taxes, check out this helpful article on The Photo Life.
About NinetyNine Beans
We’re bean-counters and proud of it! Everything you’ve ever thought about people who look at numbers all day? It’s all true, and we love it. We are a team of CPA’s, bookkeepers, and accounting specialists – basically a group of nerds – dedicated to helping photographers.
We love spreadsheets, profit and loss statements, and balance sheets. Even more important, we love photographers. That’s why we created NinetyNine Beans, because we believe that photographers should be photographers, and bean-counters should count beans.