You need another person or crew on a house and want to pay them correctly. Calling someone a subcontractor does not make them an independent contractor. For federal tax purposes, the IRS examines control and independence in the actual relationship. IRS common-law employee guidance.
Review classification before requesting contractor paperwork. A W-9 and a signed subcontract cannot settle that question. Use the questions below to gather evidence for your CPA and employment attorney.
Start with three IRS categories
The IRS groups classification evidence into behavioral control, financial control, and the type of relationship. It requires you to consider the whole relationship rather than rely on a label. IRS classification overview.
Use these categories to organize facts for review. Do not score them as a checklist. Some facts can suggest independence while the whole relationship points toward employment. Ask a professional to assess them together.
Scroll to read all columns.
| Category | What to document on your job |
|---|---|
| Behavioral control | Who directs the individual, selects methods, and has authority over how work is done |
| Financial control | Who bears expenses, supplies business resources, and controls economic decisions |
| Relationship | What the agreement says and how the arrangement operates over time |
Describe how you plan to work together. Compare that description with what the superintendent and worker expect. If the office describes one arrangement and the superintendent plans another, resolve the difference.
Behavioral control: who directs the work
IRS behavioral guidance considers instructions about when, where, and how to work, along with evaluation and training. The right to control methods matters even if you do not give detailed instructions. IRS behavioral control.
Ask who decides the installation method, who assigns tasks to individual workers, and who can require a worker to follow a particular sequence. Record who supplies training and what any performance review measures. Include the authority the contract gives you, not only the instructions you gave yesterday.
For a trade package, describe the work you are buying and how you will coordinate site access and readiness for inspection. List instructions you plan to give individual workers separately. Ask counsel to assess both in the full relationship.
Do not stop communicating about jobsite hazards while classification is being reviewed. Bring safety requirements and site rules into the review. Ask the attorney which directions concern compliance and which concern your intended control over the work.
Financial control: tools alone do not decide status
The IRS considers investment, unreimbursed expenses, opportunity for profit or loss, market availability, and payment method. It specifically notes that construction workers can invest in tools and still be employees. IRS financial control.
Ask who prices the scope, who pays for rework, and whether the worker operates a business offered to other customers. Record who will pay the expenses. A tool belt or personal truck does not prove the worker runs a separate business.
If you reimburse every expense, record that fact. If the business carries its own costs, ask for a clear description. Tell the reviewer who pays those costs in practice. A contract phrase everyone ignores does not answer that question.
A fixed price or hourly rate is evidence to review. Neither decides classification on its own. The IRS describes payment method within the wider financial-control analysis. IRS financial control. Read how to pay a subcontractor after the relationship review.
Relationship: how the agreement compares with daily work
The IRS considers written contracts, benefits, permanence, and whether services are a key business activity. It says an independent-contractor clause alone is insufficient. IRS relationship guidance.
Ask whether you are hiring for a defined scope or an ongoing place on your team. Record how it can end and whether the individual can decline future work. Compare promised independence with expectations about availability and assignments.
Do not use the absence of benefits as a shortcut. Instead, list the whole arrangement for review. Include any paid leave, insurance, retirement benefits, recurring assignments, and restrictions on serving other customers.
If the work changes, revisit the file. A defined trade scope can become ongoing work under different supervision. Review classification when responsibilities or supervision change.
Federal tax status is one part of the review
The Department of Labor addresses employee status under the Fair Labor Standards Act through the economic reality of the relationship. Its current fact sheet also identifies rulemaking and enforcement qualifications. DOL Fact Sheet 13.
Do not treat an IRS category list as a complete wage-law or state-law determination. Ask your employment attorney to identify the tests that apply to the worker, business, and jurisdiction. Record each agency’s question separately in your review notes.
For example, ask the CPA about federal employment taxes. Ask counsel about minimum wage, overtime, state wage rules, and any joint-employer issue. Ask your insurance professional about the workers’ compensation consequences of the actual labor arrangement.
What changes when the individual is an employee
Federal employment responsibilities generally include withholding and depositing income, Social Security, and Medicare taxes, plus applicable employer taxes. IRS employment-tax guidance. Handle those duties through payroll.
Employee compensation is reported on W-2, while qualifying nonemployee services use the applicable information-return rules. IRS W-2 and 1099 comparison. Renaming an account from “crew member” to “vendor” does not change the relationship.
For workers’ compensation, North Carolina’s statute generally covers businesses regularly employing three or more employees, subject to its definitions and exclusions. N.C. Gen. Stat. § 97-2. The threshold is a separate question from federal tax reporting.
Subcontracting adds another North Carolina issue. Section 97-19 addresses upstream compensation liability for subcontractor employees and specifies certificate and policy conditions. N.C. Gen. Stat. § 97-19. Ask the insurer or attorney to review that risk even if the sub calls itself a small independent business.
Keep general liability, workers’ compensation, payroll, and contract responsibility on separate review lines. Ask which person or business is responsible for each obligation. Avoid treating an insurance document as a classification opinion.
Gather the records your reviewer needs
Gather the following before asking for a determination:
Compare the crew employment arrangements with the contract-role and worker-status distinction before asking your reviewer to resolve uncertainty.
- The agreement and scope, including incorporated documents.
- The proposed payment basis and expense arrangement.
- A description of who directs individuals and controls methods.
- Training, scheduling, and performance-review practices.
- The worker’s stated business activities and customer arrangements.
- Relevant payroll, invoice, and insurance records.
- A list of facts the office and field team describe differently.
Use neutral descriptions. “The superintendent assigns daily tasks to this person” gives the reviewer something concrete to assess. “Everyone knows the crew is independent” does not describe an operating practice.
Confirm the facts with both the person arranging the work and the person supervising it. Resolve conflicting accounts before stating that the arrangement complies with the rules. Keep the professional’s conclusion and the assumptions it relies on.
Who can resolve uncertainty
Businesses and workers can use Form SS-8 to request an IRS worker-status determination for federal employment taxes and income-tax withholding. IRS Form SS-8 overview. Ask your CPA or attorney whether that process suits the issue.
North Carolina’s Employee Classification Section investigates misclassification reports and coordinates with relevant state agencies. NC Industrial Commission division. The applicable agency or court can make determinations within its authority. Your project label does not bind them.
Raise unresolved questions before the crew starts. Tell the professional what you need to decide, which payments you have made, and which facts you have not confirmed. Do not backdate new paperwork to hide an earlier working arrangement.
For year-end reporting after the payment records are reconciled, follow the subcontractor 1099 workflow.
Where Cercha fits
Cercha shows member categories, trade tags, portfolios, and endorsements to support introductions. A Sub or Crew badge describes the profile presentation. Confirm the contracting business and labor arrangement separately before onboarding. Ask about the beta.