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Can I hire employees as independent contractors to save money on taxes in Connecticut? What are the requirements?

Based on the documents provided, it is important to note that Connecticut has strict laws regarding the classification of employees as independent contractors. Connecticut General Statutes Section 31-222(a)(1)(B) provides that an individual performing services for pay shall be considered an employee unless the employer can demonstrate that:

  • The individual has been and will continue to be free from control or direction over the performance of the service, both under his contract of hire and in fact; and
  • The service is performed either outside the usual course of the business for which the service is performed or is performed outside of all the places of business of the enterprise for which the service is performed; and
  • The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

If an employer fails to meet all three of these requirements, the individual is considered an employee and must be treated as such for tax purposes.

Employers who misclassify employees as independent contractors may be subject to penalties and fines. Connecticut General Statutes Section 31-71e provides that employers who misclassify employees as independent contractors may be fined up to $300 per employee for the first violation and up to $500 per employee for each subsequent violation.

It is important to note that Connecticut has additional tax laws that may impact hiring independent contractors. For example, state contractors may be required to collect and remit use tax on behalf of their customers [2.1]. Additionally, firms may be eligible for tax credits if they meet certain requirements [4.1].

In conclusion, while hiring independent contractors may seem like a way to save money on taxes, it is important to carefully evaluate the nature of the work being performed and the relationship between the employer and the individual before classifying them as an independent contractor. Misclassifying employees can result in significant penalties and fines.

Source(s):
Jurisdiction

Connecticut