CPA Tips for Small Business Hiring in Roy, Utah

One of the most common — and most expensive — mistakes small business owners make is misclassifying workers.

Whether you’re hiring your first team member or expanding your business in Kaysville, Layton, or Roy, Utah, determining whether someone is an employee or independent contractor isn’t just a paperwork step. It affects:

• Your taxes
• Your liability
• Your payroll obligations
• Your insurance requirements
• Your risk level
• Your audit exposure

And the IRS takes misclassification seriously.

At FJ & Associates, we walk Utah business owners through this decision every week. The transcript excerpt above shows just how much confusion exists around this topic — and why getting it right matters.

Let’s break down the real differences and how to make the right choice with confidence.

The Core Question: Who Controls the Work?

In the interview, one of our partners summarized it perfectly:

“Typically my rule of thumb as a small business owner is: do I dictate this person’s work schedule, processes and who is liable if the work fails?”

If you control:

• Their schedule
• How they perform their work
• Where they perform it
• What tools they use
• How long they work
• When they take time off

…then you are functioning like an employer, not a client.

This is the biggest IRS indicator.

Control = employee.

Contractors, on the other hand, run their own business. They set the terms. They manage their own resources. They control how the job gets done.

Employee vs Contractor: Behavioral, Financial & Relationship Tests

The IRS uses three factors to evaluate classification:

1. Behavioral Control

Do you train them, direct them, or supervise them?

Employees get instructions. Contractors get deliverables.

2. Financial Control

Do they bring their own tools?

Do they invoice you like a business?

Can they work for multiple clients?

If you pay them hourly and they depend on you for income, that leans toward employment.

3. Relationship Type

Contracts matter — but actions matter more.

If you offer PTO, reimburse travel, provide a laptop, or expect loyalty, the IRS sees an employee.

Key Indicators Someone Is a Contractor

From the transcript:

“A contractor is treated as their own business… you may reimburse them for some things, but you’re paying their business, not the individual.”

Contractors typically:

• Have a business entity (LLC, S Corp)
• Carry their own liability insurance
• Provide tools and materials
• Invoice you for work
• Work for multiple clients
• Control their own schedule
• Do not receive benefits or PTO
• Take responsibility for mistakes

Paying a contractor’s business — not them personally — strengthens your argument if the classification is ever questioned.

Liability: One of the Biggest Differences Utah Owners Overlook

One of the most helpful points from your transcript:

“If it’s an employee, your business is held accountable… a contractor is liable for what they do.”

This matters more than most owners realize.

When you hire an employee:

You are responsible for their actions.

If something goes wrong, your business is legally accountable.

When you hire a contractor:

They must carry their own insurance.

They are liable for their mistakes or damages.

This is why classification affects risk, not just taxes.

Why Utah Businesses Get This Wrong

Businesses across Kaysville, Layton, and Roy often choose contractor classification because they believe it’s “cheaper.”

But this shortcut comes with real risks:

• IRS penalties
• Back taxes
• Back payroll tax liabilities
• Overtime payments
• Workers’ comp claims
• Unemployment insurance disputes
• Legal issues if someone gets hurt on the job

If the IRS determines a contractor was actually an employee, you could owe years of back taxes, plus penalties.

Real Example: Insurance Requirements Protect Businesses

Your transcript emphasizes an important distinction:

“Them having insurance, having an actual entity — those are huge pieces for arguing they are a contractor.”

If a contractor damages property or injures someone, their insurance should cover it.

If they don’t have insurance, and something goes wrong, the court may argue they were actually functioning like an employee — putting liability back on you.

This is why FJ & Associates recommends requiring liability insurance from all contractors.

Checklist: Is This Person an Employee or Contractor?

(Straight from the interview insights and expanded into a clean format)

You likely have an EMPLOYEE if:

• You set their hours
• You train or supervise them
• You provide equipment or tools
• You reimburse travel regularly
• You expect exclusivity
• You give PTO or benefits
• They represent your business publicly
• They perform ongoing and recurring tasks
• You control their workflow

You likely have a CONTRACTOR if:

• They have an LLC or an S Corp
• You pay their business, not them
• They invoice you
• They use their own equipment
• They work for multiple clients
• They have liability insurance
• They control their schedule
• You only pay based on deliverables
• They can subcontract work as needed

This checklist will soon be available on the FJ & Associates website.

Why Business Owners Should Review This With a CPA Every Year

Businesses evolve.

Roles evolve.

Relationships evolve.

Someone who starts as a contractor may transition into an employee role as responsibilities grow.

FJ & Associates recommends annual classification reviews because:

• IRS rules change
• Utah tax rules change
• Workers’ comp laws change
• Liability exposure changes
• Payroll needs change
• Growth changes roles

What worked last year may no longer be compliant today.

Key Takeaways

• Employee vs contractor classification affects taxes, payroll, and liability.
• Contractors should be paid as a business, not as individuals.
• Liability insurance is a major differentiator.
• Wrong classification can trigger IRS penalties.
• Annual reviews with a CPA reduce risk.

Not sure if your worker is an employee or a contractor?

👉 Schedule a classification review with FJ & Associates — your trusted CPA serving Kaysville, Layton, and Roy, Utah.

FAQ: Employee vs. Contractor — How to Classify Workers Correctly

1. Why does worker classification matter so much?

Because the difference between an employee and an independent contractor affects:

• Taxes
• Payroll obligations
• Liability
• Insurance requirements
• Unemployment eligibility
• Audit risk
  Misclassification is one of the fastest ways small businesses trigger IRS penalties, especially in Utah.

2. What’s the core question that determines classification?

The IRS focuses on control — specifically:

• Who controls how the work is done?
• Who controls when the work is done?
• Who provides tools, guidance, or supervision?

If you control these factors, the worker is likely an employee.
If they control these factors, they’re likely a contractor.

3. What tests does the IRS use to classify workers?

The IRS uses three categories:

• 1. Behavioral Control

Do you train, supervise, or direct the work?

Employees: receive instructions and oversight

Contractors: receive deliverables, not step-by-step direction

• 2. Financial Control

Who pays for tools, materials, and expenses?
Who sets payment terms?
Do they work for multiple clients?

• 3. Relationship of the Parties

Do you provide benefits, PTO, or long-term expectations?
Does the contract imply ongoing employment?

No single factor determines classification — the IRS weighs all three.

4. What are clear signs someone is an employee?

You likely have an employee if:

• You set their hours
• You train or supervise them
• You provide tools or equipment
• They represent your business
• You require ongoing availability
• You reimburse regular travel or materials
• They do ongoing, recurring work
• You expect loyalty or exclusivity

In short: If you act like an employer, the IRS sees an employee.

5. What are clear signs someone is a contractor?

You likely have a contractor if they:

• Have an LLC, S Corp, or business entity
• Work for multiple clients
• Provide their own tools and materials
• Invoicing you for services
• Control their own schedule
• Carry liability insurance
• They are responsible for their own mistakes
• Can subcontract work

Contractors operate independently — not under your direction.

6. Why is liability such a significant difference?

If you classify someone as an employee:

• Your business is responsible for its actions.

If you classify someone as a contractor:

• They assume liability (if they have proper insurance).

This is one reason FJ & Associates urges businesses to require contractor liability insurance — it protects you legally and supports proper classification.

7. What risks do Utah businesses face for misclassification?

Misclassification can lead to:

• Back payroll taxes
• Penalties and interest
• Workers’ comp disputes
• Unemployment insurance liabilities
• Overtime claims
• IRS or state audits
• Legal claims if someone is injured

A mistake you make today can create expensive problems years later.

8. Does paying someone as a contractor make them a contractor?

No.
How you pay someone doesn’t determine their status.
How you treat them does.

If the working relationship looks like employment, the IRS will classify them as an employee — even if you issued a 1099.

9. How does paying a contractor’s business entity help?

Paying an LLC or S Corp strengthens the argument that the person is acting as an independent business, not your employee.
It also ensures:

• They handle their own taxes
• They carry their own liability
• They accept responsibility for their work

This is a powerful protection in the event of an IRS review.

10. Why do Utah businesses struggle with classification?

Many small businesses assume contractors are “cheaper” and easier.
But skipping payroll obligations exposes you to:

• IRS penalties
• Back taxes
• Liability claims
• Insurance issues
• Legal disputes

Cutting corners often costs more — sometimes tens of thousands more.

11. How often should worker classifications be reviewed?

At least once a year.
Roles evolve — someone who begins as a contractor may eventually function like an employee as responsibilities grow.

FJ & Associates recommends annual classification reviews because:

• IRS rules change
• Utah payroll laws change
• Workers’ comp rules change
• Business structures evolve

What was compliant last year may not be compliant today.

12. Can FJ & Associates help determine the proper classification?

Absolutely.
We help businesses across Kaysville, Layton, Roy, and northern Utah:

• Review worker roles
• Determine proper classification
• Establish correct payroll systems
• Reduce IRS and liability risk
• Document relationships properly

Our classification guidance prevents problems before they become expensive.

👉 Not sure how to classify a worker? Schedule a review with FJ & Associates today.

We’ll help you make the right call and avoid expensive mistakes.

Missy Dennis is a Partner at FJ & Associates, PLLC, based in Kaysville, Utah. With over twenty years of public accounting experience, Missy specializes in tax preparation, taxadvisory, bookkeeping, estate and trust taxation, consulting, and auditservices.

She holds a Master of Accountingdegree from the University of Utah and is a licensed Certified Public Accountant. Her industry expertise spans low-incomehousing taxcredits, non-profit accounting, and a wide variety of small- to mid-sized businesses.

Missy is dedicated to helping clients navigate complex tax and financial matters with clarity and confidence. She is committed to providing accurate, trustworthy, and actionable guidance so clients can focus on what they do best.

Contact:FJ & Associates, PLLC
612 North Kay’s Drive, Suite 120