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

In Maryland, hiring employees as independent contractors to save money on taxes is not recommended. The state has strict requirements for determining whether a worker is an employee or an independent contractor, and misclassifying workers can result in penalties and legal consequences.

According to ^[2.1], the Labor and Employment Article of the Annotated Code of Maryland provides guidelines for determining whether a worker is an employee or an independent contractor. The law presumes that a worker is an employee unless the employer can prove that the worker meets all three of the following criteria:

• The worker is free from control and direction in the performance of the work, both under the contract of hire and in fact;
• The work is performed outside the usual course of the business of the employer; and
• The worker is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the work performed.

If the worker does not meet all three criteria, they are considered an employee and must be treated as such for tax purposes. This means that the employer must withhold and pay payroll taxes, including federal and state income tax, Social Security tax, and Medicare tax, on behalf of the employee.

Therefore, it is important to properly classify workers as employees or independent contractors to avoid legal and financial consequences.

Source(s):

• [2.1] 09.12.41.00

Jurisdiction

Maryland

• Privacy