Contractor Versus Employee Sb Gorilla


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Recent presentation to small business owners and entrepreneurs on current IRS and TWC definitions of employees and contractors

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Contractor Versus Employee Sb Gorilla

  1. 1. Presented by Caroline Valentine<br />ValentineHR<br /><br /><br />512 659 9848<br />Consultant, Contractor or Employee<br />
  2. 2. Outcomes<br /><ul><li>Understanding government definitions of employment
  3. 3. Knowledge of potential costs to your business
  4. 4. Checklist with details for determination of status</li></li></ul><li>Consultant <br /> Contractor <br />Employee<br />Definitions<br />
  5. 5. Common Law Test<br />Having the right to control or direct only the RESULT of the work done and not the MEANS AND METHODS of accomplishing the result. <br />
  6. 6. <ul><li>Independent contractor
  7. 7. Common law employee
  8. 8. Statutory employee
  9. 9. Statutory nonemployee</li></ul>IRS Definitions <br />
  10. 10. Independent Contractor<br />The general rule is that an individual is an independent contractor if you, the person or company for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.<br />
  11. 11. Common Law Employee<br />Under common law rules, anyone who performs services for you is an employee if you have the right to control what will be done and how it will be done.<br />
  12. 12. Common Law Employee<br />This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed. <br />
  13. 13. Common Law Rules<br /><ul><li>Behavioral control
  14. 14. Financial control
  15. 15. Type of relationship</li></li></ul><li>Behavioral Control<br />Instructions<br /><ul><li>When and where
  16. 16. What tools or equipment
  17. 17. What workers to hire or to assist with the work
  18. 18. Where to purchase supplies and services
  19. 19. What work must be performed by an individual
  20. 20. What order or sequence</li></ul>Training <br />
  21. 21. Financial Control<br />The extent…<br /><ul><li>to which the worker has unreimbursed business expenses
  22. 22. of the worker’s investment
  23. 23. to which the worker makes his/her services available to the relevant market
  24. 24. to which the worker can realize profit or loss</li></ul>How the business pays the worker <br />
  25. 25. TypeofRelationship<br /><ul><li>Written contracts
  26. 26. Provide benefits – insurance, vacation, sick time, retirement
  27. 27. Permanency of relationship
  28. 28. Key aspect of regular business of company</li></li></ul><li>Statutory Employee<br />If meet independent contractor definition under common law rules, may still be employees by statue or “statutory employees.”<br /><ul><li>Driver who distributes and/or delivers goods
  29. 29. Life insurance sales agent
  30. 30. Home worker assembling goods
  31. 31. Sales person </li></li></ul><li>StatutoryNonemployees<br /><ul><li>All payments are directly related to sales or other output, rather than number of hours worked
  32. 32. Work performed under a written contract providing they will not be treated as employees for tax purposes
  33. 33. Direct sellers, licensed real estate agents and certain companion sitters</li></li></ul><li>StatutoryNonemployees<br /><ul><li>Licensed real estate agents – income based on sales
  34. 34. Companion sitters – self-employed
  35. 35. Direct sellers
  36. 36. Selling consumer products in home or business other than retail location
  37. 37. Selling consumer products on buy-sell basis for resale
  38. 38. Delivering newspapers or shopping news</li></li></ul><li>Work for Hire<br />Also known as work made for hire, must be ordered or commissioned and contract in place AND…<br /><ul><li>Contribution to collective work
  39. 39. Part of motion picture or audiovisual work
  40. 40. Translation
  41. 41. Supplementary work
  42. 42. Compilation
  43. 43. Instructional text
  44. 44. Test and/or answer material for test
  45. 45. Atlas</li></li></ul><li>TWC Definition<br />Under the common law test, a worker is an employee if the purchaser of that worker's service has the right to direct or control the worker, both as to the final results and as to the details of when, where, and how the work is done. Control need not actually be exercised; rather, if the service recipient has the right to control, employment may be shown.<br />
  46. 46. Checklist for Comparative Approach<br /><br />TWC Handout<br />
  47. 47. Consequences withIRS and TWC<br />Required to withhold…<br /><ul><li>Federal income
  48. 48. Social Security and Medicare (FICA)
  49. 49. Federal Unemployment (FUTA)
  50. 50. State Unemployment (SUTA or TUCA)</li></ul>Worker’s Compensation Insurance<br />
  51. 51. Non Profit Organizations<br />Many nonprofit organizations are exempt from paying federal income tax but still must withhold federal income tax from pay or wages of employees. There are special rules for FICA and FUTA that apply to those wages. Please see Publication 15A of IRS for details.<br />Exemption is not always the case with State of Texas, check TWC website under Unemployment Insurance Law –Employer Responsibility and Coverage Issues <br />
  52. 52. Penalties and Fines<br /><ul><li>IRS is authorized to penalize you up to 100% of taxes owed (back taxes)
  53. 53. Willful evasive action can result in felony and fines up to $500,000 (and back taxes)
  54. 54. Willful failure to collect can result in felony and $10,000 fine (and back taxes)</li></li></ul><li>Current Climate<br />The head of the DOJ Tax Division has warned a group of tax attorneys that the IRS and DOJ will aggressively pursue unpaid employment taxes. In addition to civil methods to recover unpaid taxes, the DOJ indicated it will ramp up criminal enforcement as well. <br />
  55. 55. Resolution<br />Reclassify correctly <br />If you have treated employees as nonemployees, make a “good faith” effort to resolved it with the IRS. See section 3509 of IRS Code for details. <br />TWC – see Unemployment tax rates<br />
  56. 56. <ul><li>Define Correctly
  57. 57. Use a Checklist
  58. 58. Contain your Cost </li></ul>Wrap Up<br />