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Tax Planning Conference Addresses IRS Focus on Employment Tax Audits
Independent Contractor or Employee? A Complex Answer with Tax and Legal Consequences
Business Owners - Do You Use Independent
Contractors?
Are You Ready for the IRS?
- Now, more than ever, businesses cannot afford to be cavalier about how their workers are classified.
- The distinction between employee and independent contractor is an area of scrutiny - and possible revenue raising - for the IRS.
- Don't get caught with incorrect classifications and sloppy recordkeeping - it could cost you thousands!
- A skilled CPA offers this exclusive Agreement, worth hundreds more, to help you avoid IRS penalties and fees.
Do You have Independent Contractors?
“Incorrect worker classification” may lead to the IRS, State Labor Department, Workers Compensation Board, etc. reclassifying workers as employees, instead of Independent Contractors, and subject you to significant penalties. This is a dangerous, and frequently unrecognized, threat to many businesses today. The IRS is currently increasing enforcement activities regarding this issue. Various states have been increasing their penalties significantly, to dangerous levels.
To defend against this type of attack can be emotionally upsetting, waste much valuable time, hinder normal business activity, and costs thousands of dollars in legal fees. A defense is very difficult when the facts and circumstances of your case are weak and documentation is inadequate. While the past cannot be changed, in the present, the future can be structured.
Government auditors examine a number of different criteria to determine whether a hiring firm has the right to control a worker. Different agencies use different sets of criteria.
Each case must be decided on its own facts, with no single criteria being determinative. However, the primary issue in determining the distinction between an employee and independent contractor is whether the Company maintains the right to control the manner and means by which the worker accomplishes the desired result.
Independent Contractors perform their duties free from:
1) Supervision
2) Direction
3) Control
It is not necessary to satisfy every criteria for a worker to be considered an IC. How much is enough? The best answer is that the criteria considered by the agency involved—be it the IRS, state unemployment insurance agency, or other agency—must weigh in favor of IC status. Obviously, the more criteria that indicate IC status, the more secure and protected you’ll be if you’re audited.
If you do not have an Independent Contractor Agreement, and you are unclear as to what specific language needs to be included in that agreement, we have one available to you now, as an instant PDF download, which is easy to understand, modify, and implement.
You should have on file an Independent Contractor Agreement signed by the business (the Independent Contractor’s Client) and the Independent Contractor.
The 8 page, 23 paragraph, Independent Contractor Agreement includes:
- 3 paragraphs and 18 criteria which address the issue of Independent Contractors;
- Safe Harbor provisions;
- Non-Disclosure of Confidential Information;
- Non-Competition (between the Independent Contractor and the client company), and
- Other important legal provisions to round out, secure and document the Agreement. This agreement addresses both Federal and state criteria for determining the status of an individual. It may save you time and money.
It is in your best interest to 1) sign this Agreement, 2) retain in your records, 3) observe the basic guidelines contained in it, and 4) document a defensible position.
Anything less is a danger to your business.