Don’t Be So Sure.
Why Use ‘Em?
So your business utilizes “independent contractors” to, let’s say, re-stock in-store promotional product displays for your vendor clients in multiple states. Or maybe you own a national ground shipping and delivery service, who sells routes to “independent contractors” for local delivery. Using independent contractors can serve you well- you don’t pay the various employment taxes on them, offer benefits, or pay overtime, you don’t have to cover them for workman’s compensation, and you avoid oversight by those pesky federal agencies- the Department of Labor, the EEOC, etc.
For the worker, the benefits are- or should be- attractive as well. The worker enjoys the freedom to perform the job without direction or control of the hiring company, an opportunity for profit (and loss), the flexibility to work only as much as is needed to get the job done, and the ability to do work for a number of companies at the same time. Many workers want to be independent contractors- want to be their own boss-but the fact is, a worker’s preference can’t protect your company from the civil, criminal and tax penalties associated with worker misclassification.
In 2005, nearly 10.3 million workers (7.4% of the employed workforce) were classified as independent contractors. However, the number of independent contractors who are properly classified as such is probably far less. In fact, a study by the U.S. Department of Labor found that between 10% and 30% of the employers audited were found to have misclassified workers.
But the arrangement has worked for your company so far…why change it?
Why Worry Now?
Here’s why: You may have heard that the U.S. is having some financial troubles. The Obama Administration (and the IRS) have figured out that the government is losing around $20 billion a year due to worker misclassification. Apparently, it is time for a crackdown. The administration has dedicated $25 million towards the “Misclassification Initiative” to get that money back. They’ve taken the following steps to go after companies who misuse independent workers, leased worker, temporary workers and misclassify exempt workers:
Authorized the Department of Labor to hire 100 additional investigators
Issued a joint proposal by DOL and DOT to penalize employers who misclassify
Introduced the Taxpayer Responsibility, Accountability, and Consistency Act of 2009 – which increases penalties for filing incorrect employment tax information on tax returns
Introduced the Employee Misclassification Protection Act of 2010
Instituted an RS plan to randomly audit over 6,000 companies in 3 years
Through their efforts, President Obama anticipates bringing in $7 billion in additional revenue in next 10 years. You might say this administration is motivated.
What to do?
If you use Independent Contractors in your business now is the time to review your workforce and job descriptions, and to answer the following questions:
Is the worker free from company control/supervision as to how the worker performs his/her task?
Is the worker skilled? Did the worker come into the job already trained to the work?
Does the worker have freedom to perform the tasks required on his/her own schedule?
Does the company allow the worker to take other jobs, work for other companies?
Does the worker have his/her own tools?
Does the worker have the flexibility to accept or reject the work?
Does the worker have the opportunity to make more or less, enjoy profit or suffer loss?
If you answered NO to any of these questions, there’s a good chance you have misclassified this worker. Call our firm- we can conduct a thorough audit to examine your workforce. Or you could let the IRS do it……