by Stephen D. Hans | Jun 19, 2018 | Employment Defense Attorney, Misclassifying Workers as Independent Contractors
Why is worker classification important? If a worker is an employee, you as the employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on the wages paid to the worker. Workers who are independent contractors are responsible for paying their own Social Security and Medicare taxes, which is called self-employment tax. The employer pays half of the employee’s self-employment tax and the employee pays the other half. Independent contractors pay the full amount of self-employment tax themselves. What Factors Determine Whether a Worker is an Independent Contractor or Employee? According to the IRS website, the three main factors that help an employer decide whether a worker is an employee or independent contractor are: Behavioral control Financial control Relationship How Does Behavioral Control Factor into Work Status? The employer has more control over an employee than an independent contractor. Control includes factors such as instructing the worker when and where to do work, specifying what tools to use or where to buy tools. Employees receive detailed instruction and employers may have evaluation systems in place to measure the end result of their work. Also employees often receive job training that specifies procedures and methods to be used. This is true whether the training is periodic or ongoing. How Does Financial Control Affect Work Status? Examples of financial control that would apply to employees are substantial investment in the worker’s equipment, reimbursed expenses, no opportunity for profit or loss, and method of payment, such as a regular wage for hourly, weekly or some other time period payment. Even when the employer supplements pay by commissions, workers...
by Stephen D. Hans | Jun 12, 2018 | Employment Defense Attorney, Misclassifying Workers as Independent Contractors
How Would Your Small Business Fare with the IRS for Worker Status? Did you know that misclassifying workers is one of the top problems that small business owners face? Many small businesses hire independent contractors as part of running their businesses and delivering services or products. It is vital for employers to ensure that they classify workers correctly. What Can Happen as Result of Misclassifying Workers as Independent Contractors? The IRS website explains that misclassified workers can file a Social Security Tax Form 8919. Form 8919 is a request for uncollected Social Security and Medicare taxes due on their compensation. In other words, the employer could owe a considerable amount of compensation to the worker because the worker paid the Social Security and Medicare taxes instead of the employer, due to the fact the worker was misclassified as an independent contractor. What Recourse Do You Have If You Believe the Worker Has Not Been Misclassified? The IRS recognizes the fact that you may have had a reasonable basis for classifying a worker as an independent contractor and not as an employee. Therefore, relief provisions are granted in such cases. However, you must file all the necessary federal information returns to establish your basis for relief. (See section 530 Employment Tax Relief Requirements). What is the Voluntary Classification Settlement Program? The Voluntary Classification Settlement Program (VCSP) offers employers the option of reclassifying workers as employees for future tax periods. It also provides partial relief from federal employment taxes when the employers agree to classify their workers or a class or group of workers as employees. Employers must meet certain eligibility...
