In each of the following independent situations, decide whether the business organization should treat the person being paid as an employee and should withhold social security, Medicare, and employee income taxes from the payment made.
1. Tony Jacobs owns and operates a crafts shop, as a sole proprietor. Jacobs withdraws $2,000 a week from the crafts shop.
2. Guy Gagliardi is a court reporter. He has an office at the Metroplex Court Reporting Center but pays no rent. The manager of the center receives requests from attorneys for court reporters to take depositions at legal hearings. The manager then chooses a court reporter who best meets the needs of the client and contacts the court reporter chosen. The court reporter has the right to refuse to take on the job, and the court reporter controls his or her working hours and days. Clients make payments to the center, which deducts a 30 percent fee for providing facilities and rendering services to support the court reporter. The balance is paid to the court reporter. During the current month, the center collected fees of $30,000 for Guy, deducted $7,500 for the center’s fee, and remitted the remainder to Guy.
3. Ken, a registered nurse, has retired from full-time work. However, because of his experience and special skills, on each Monday, Wednesday, and Thursday afternoon he assists Dr. Grace Liu, a dermatologist. Ken is paid an hourly fee by Dr. Liu. During the current week, his hourly fees totaled $800.
4. After working several years as an editor for a magazine publisher, Lisa quit her job to stay at home with her two small children. Later, the publisher asked her to work in her home performing editorial work as needed. Lisa is paid an hourly fee for the work she performs. In some cases, she goes to the publishing company’s offices to pick up or return a manuscript. In other cases the firm sends a manuscript to her, or she returns one by mail. During the current month, Lisa’s hourly earnings totaled $2,500.
5. Investor Corporation carries on very little business activity. It merely holds land and certain assets. The board of directors has concluded that they need no employees. They have decided instead to pay Ron Christie, one of the shareholders, a consulting fee of $20,000 per year to serve as president, secretary, and treasurer and to manage all the affairs of the company. Christie spends an average of one hour per week on the corporation’s business affairs. However, his fee is fixed regardless of how few or how many hours he works.
Analyze: What characteristics do the persons you identified as “employees” have in common?
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