Independent Contractor or Employee?

There is a storm brewing on the horizon. Are you ready for it? Taxes are going up for employers. If you have employees, look out! You’ve now been defined as the ‘other guy’ who gets to pay for all of the government benefit increases and tax shortfalls.

And your benefits are getting cut. The non-discriminatory plans, like pension plans, that are designed to make sure you, the owner, don’t discriminate against employees actually DO discriminate. They discriminate against you!

There is a solution. Don’t hire employees, hire independent contractors. But, the IRS is on to that and they’ll be looking for every way they can to reclassify your independent contractors into employees. It means more tax revenue.

Some recent court cases show how skewed the rules can be:

Parcel Delivery Drivers Ruled as Independent Contractors in California case. The drivers had sued the company, California Overnight, in order to collect overtime pay and benefits. NOTE: Have an Independent Contractor Agreement that clearly lines out the relationship and make sure your Independent Contractor initials and signs as required.

Couriers and Messengers Ruled to be Employees in Law Firm. The circumstances of work and hours were controlled by the law firm. As a result, the couriers were found to be employees. The law firm received a $15,000 penalty for failure to have worker’s compensation insurance. NOTE: Make sure you’ve reviewed the control issues in Winning the Independent Contractor Agreement. You can line out the result, just not how and when it is done.

Manicurists and Cosmetologists in Salon Ruled as Independent Contractors. Originally, they workers were found to be employees and $75,000 in back taxes were assessed against the salon owner. The owner appealed and won. NOTE: I’m glad the owner eventually won, but I bet the legal and CPA fees for the appeal were probably close to have the assessed fee. And, you don’t get that back when you’re in a lawsuit like this with the government.

Video Store Workers Acting As Collection Agents Were Employees. Video store workers who used the store’s equipment and worked with set hours were found to be employees. NOTE: Again, watch the control issues. It would have been so easy to pass this test and have legitimate Independent Contractors.

Corporation Misclassifying Its Officers as Independent Contractors May Qualify for Safe-Harbor Relief. This is from an IRS internal legal memorandum, but it may be significant for many. In this memo, the IRS allows corporate officers to be considered Independent Contractors under the safe-harbor relief section 530. The memo even goes on to say that just issuing a Form 1099-MISC may be enough to establish the independent contractor status. NOTE: I’m glad that this potential loophole exists, but I don’t trust it. Make sure you meet all of the control standards and have an Independent Contractor Agreement.

There are a lot of potential benefits to using Independent Contractors, but make sure you’re doing it right!

Related posts:

• The IRS Wants To Turn Your Independent Contractor Into An Employee
• 3 Reasons an Independent Contractor May Be the Answer
• How to Pass the Independent Contractor Test
• Stop Employee Theft Cold!
• Payroll Tax Issue for Single Member LLCs