CFO Tip; Are You an "Employee or Independent Contractor"?

The IRS has launched a massive new "misclassification initiative" to scrutinize how employers are classifying their workers. Estimates say that as much as 80% of workers who are classified as "independent contractors" should be classified as "employees."

It matters a great deal to the IRS how you classify your workers – as "independent contractors" or "employees". The IRS is aware that employers prefer to treat workers as independent contractors to avoid paying fringe benefits and payroll taxes. Approximately 100 new auditors have been hired with the specific task of investigating misclassifications, and the government is estimating that the crackdown will generate at least $7 billion in revenue over the next ten years. Here the 3 categories of common law rules.

* Behavioral. Who controls what the worker does and how the worker does his/her job? You or the company?

* Financial. Does the payer control the business aspect of the workers job? Who provides tools or supplies, etc. for the job? Who decides how the worker is paid or reimbursed for expenses?

* Relationship. Is there a written contract? Is there employee benefits such as pension plan, insurance, vacation pay? Is the work performed a key aspect of the business and will the business relationship continue?

When deciding if a worker is an employee or independent contractor, as a business owner you must weigh all the factors. You need to look at the entire relationship when considering the extent of the right to direct and control the employee/ or independent contractor. It is also a good idea to document each factor used in when making your decision. Making the wrong choice may be quite costly to your business.

For a more detailed analysis of your business, contact our office at (260)497-9761 to schedule an appointment with our Virtual CFO to ensure that your business in on the right financial track. Utilizing modern technology we have the capability to assist you virtually anywhere in the USA.