Recently, the Labor Department announced that they would be getting more aggressive on businesses that improperly pay workers. In an effort to ensure employees receive all monies due to them, the Labor Department has signed agreements with several states and the Internal Revenue Service to share information unilaterally regarding businesses that improperly classify their employees as independent contractors when they are actually employees. Some factors that may indicate an employment relationship could include: the person is directed by you, they are paid an hourly wage, they receive training, they use your tools and supplies and they are required to work when scheduled. Alternatively, an independent contractor is in business for themselves, has other clients, is able to direct themselves and does the job when scheduling works best for them and they can complete the project.
To learn if you are compliant regarding the person you have hired, ask yourself:
1. Do I pay my “employee” using a 1099?
2. Did I review the “IRS 20 factor test”?
If you answered yes to either of the above questions, you may be out of compliance. The IRS no longer uses what used to be called the “IRS 20 factor test”. In its place, they now offer an essay style questionnaire in which your responses are submitted for their review. Improper classification of employees can result in large fines from multiple agencies. As just one example, in August we reported that the Colorado Department of Labor and Employment had submitted a draft proposed rule to establish fines associated with employee misclassification. If approved, The CDLE will fine first offenders 5% of each misclassified employees annual gross wages or $100, whichever is greater. Repeat offenders will be fined 25% of each misclassified employees annual gross wages or $500, whichever is greater. Do you really want to start a conversation with the IRS?
StaffScapes can help you determine the proper classification and avoid penalties from the IRS. Why not work with a local partner to ensure you are compliant? StaffScapes is a full-service Human Resource and payroll company that helps small businesses with important tasks such as:
• Human Resources
• Workers’ Compensation
• Employee Relations
• Risk Management
For more information, please contact Jim Thibodeau at 303-466-7864 or info@StaffScapes.com.