Businesses frequently struggle with determining what capacity a worker actually serves. They know a person is on payroll and does a specific set of tasks, but as to how that individual is actually keyed into a human resources management system, it is possible that information is entirely wrong. Specifically, figuring out the difference between regular employees and independent contract workers proves difficult even for seasoned personnel. Tax authorities are especially interested in making sure companies have this classification system correct, as it can have an impact on the kind of remittance deducted from each paycheck, and subsequently can muddle tax returns. Classification becomes very important with regard to compensation and unemployment issues. An employee or a contractor? All workers are classified as individuals who receive funds from a business in return for rendering services, but that does not make a distinction between employees or contract staff on its own. The clarification comes when considering who has control over what that person does. If the company is entitled to give commands to a person, that individual is an employee. If an entity is only allowed to assign a task and oversee a process, but not interfere or provide direct supervision, that typically qualifies as a contract worker. Once that distinction has been made, entering these two categories into payroll should be simple, and then further splicing employees based on exemption stated should follow suit. Professionals like doctors, lawyers and independent tradesmen are usually considered contract workers by the IRS, dependent on their circumstances. They pay employment taxes manually, unlike employees who get automatic deductions. Who is exempt? Employees are either exempt or non-exempt in terms of overtime pay, depending on job title, salary and duties performed. The FLSA strictly lists the guidelines for qualifying workers, and those who are non-exempt are entitled to time-and-a-half pay on all work carried out in excess of 40 hours per week. Also, any employee that earns less that $23,600 is considered non-exempt by the FLSA. Just like with IRS compliance guidelines, failure to properly determine exemptions in payroll calculations can result in penalties for the employer. These entities provide thorough classification information at their websites, so that any small business owner can easily familiarize himself with what each of his workers is, does and qualifies for.