Hiring Your First Helper: Independent Contractor or Employee?

When orders pile up, an extra pair of hands in the garage can feel like a lifesaver. Before that helper starts, you need to know whether they’re an independent contractor or an employee, because the paperwork and taxes are very different.

This is general information, not legal or tax advice. Rules vary by state, so check with a tax professional or your state labor department.

How the IRS decides

The IRS uses common-law rules that look at the whole relationship, grouped into three categories:

• Behavioral control: can you direct what work is done and how it’s done, through instructions or training?
• Financial control: who pays expenses, who invests in tools, how the worker is paid and whether they can make a profit or loss.
• Relationship: written agreements, benefits, how permanent the arrangement is and whether the work is a key part of your business.

A helper who works your hours, at your bench, with your tools, doing your core product work, likely points toward employee. If you’re unsure, you can ask the IRS for a determination with Form SS-8.

The Labor Department has its own test

For wage and hour law, the DOL’s Fact Sheet 13 asks whether the worker is economically dependent on you or in business for themselves. A signed contractor agreement or a 1099 doesn’t decide the answer. The DOL proposed a new classification rule in February 2026, so check the page for the current status.

If they’re an independent contractor

• Have them fill out Form W-9 and keep it for four years.
• File Form 1099-NEC if you pay them at least the reporting threshold, which the IRS instructions set at $2,000 for tax years beginning after 2025. Copies are due by January 31.
• If they don’t give you a taxpayer ID, backup withholding of 24% may apply.

If they’re an employee

The SBA’s hiring checklist and the IRS list these core steps:

• Get an EIN and any state tax IDs.
• Collect Form W-4 for withholding.
• Complete Form I-9 within three business days of the start date, and keep it on file.
• Withhold income tax and Social Security and Medicare taxes, pay the employer share, and pay unemployment tax.
• Report the new hire to your state’s new-hire directory.
• Carry workers’ compensation as your state requires, and register for state unemployment insurance if needed.
• Post required labor law notices.

Treating an employee as a contractor without a reasonable basis can leave you owing their employment taxes. Talk with your insurer too, since a helper changes your coverage needs. Train any helper on each tool, and provide eye, hearing and dust protection.

More on Garage Business Blueprint

• Taxes for a Garage Business: Self-Employment Tax, Quarterly Payments and the Home Office Deduction
• Getting an EIN and Opening a Business Bank Account for Your Garage Business
• Home Business Insurance: What Your Homeowner’s Policy Won’t Cover and What to Buy Instead

Sources

• IRS: Topic no. 762, Independent contractor vs. employee
• IRS: Independent contractor (self-employed) or employee?
• IRS: Forms and associated taxes for independent contractors
• IRS: Instructions for Forms 1099-MISC and 1099-NEC
• U.S. Department of Labor: Fact Sheet 13, Employment Relationship Under the FLSA
• U.S. Small Business Administration: Hire and manage employees
• USCIS: Handbook for Employers M-274, Completing Section 2