Media Center
If you’re confused with the IRS rules surrounding “who is an employee” and “who is a contractor,” you are not alone.
Temp agencies, retail businesses, transportation companies and other businesses that are seasonal in nature seem to be the most affected by this. However, many transportation and service industries had moved to the Independent Contractor Model years back as a means of avoiding payroll taxes and benefit costs, and often found that the fines and penalties were so much less than “playing by the rules,” that it became an actual, established business approach.
Now all of this may change due to a number of factors, one of these being healthcare reform.
The government has tightened up the eligibility rules for employers both in number of hours worked, and with a better set of rules/definition from the IRS – 20 statements – of what classifies an employee as “your worker.” Click here to view the full IRS 20 Factor Test on Employment Status.
ENTER THE CASEY BILL
In addition, there is the “Payroll Fraud Prevention Act of 2013,” also known as the Casey Bill after PA Democratic Senator Bob Casey. This addresses the US Dept. of Labor’s desire to expand regulations specific to misclassification of workers as “Contract Employees” (or freelancers) and thus, tighten regulations to address employers who use “contract employees” to avoid payroll taxes, and in turn avoiding the cost of offering these employees benefits.
According to the Jan. 15 Benefits Pro Article by Scott Wooldridge “Going after employers who misclassify workers ~ 1099 or W-2?” :
“Under federal law, an employee’s status is determined by the degree of an employer’s control over the manner and means of work, not any written agreement….
Advocates of stricter regulation say misclassification occurs when an employer intentionally classifies a worker as an “independent contractor” instead of as an employee to avoid paying taxes and providing employee benefits. Some say the passage of the Patient Protection and Affordable Care Act will give some employers further incentive to keep workers off the books as official employees.”
The article goes on to discuss the Casey bill, which has raised mixed opinions on the prospects of actual passage in 2014. The article quotes historian and labor rights advocate Marjorie Elizabeth Wood, who supports the Casey bill and is optimistic about action. She said, “Payroll fraud legislation could have a very good chance of passage in this climate as an issue that doesn’t dramatically expand workers’ rights but rather guarantees the protections employees already have.”
It also states that Wood encourages employers to “take steps to educate themselves on the issue, noting that the IRS provides online resources to help employers ensure they are in compliance.”
“Some employers falsely believe that just because a worker signed a contract agreeing to ‘independent contractor’ status means they are off the hook,” she said. “Not so. Such contracts are meaningless if the actual working relationship is otherwise.”
JUST GETTING STARTED
Without question, the issue of determining who is, and is not, a legitimate full-time employee has become more important as we look ahead to Jan. 1 2015 and beyond. Stay tuned for more, or contact me to discuss your unique situation and the immediate concerns of today.
