Course Description
If you own or manage a business that uses independent contractors, you need to know when you can or cannot treat a worker as an independent contractor. This presentation answers some of the common questions about worker classification.
INTRODUCTION
Misclassification of employees as independent contractors is now a common phrase uttered by state and federal legislators and regulators. State task forces have been formed to crack down on businesses that do not pay unemployment insurance and workers’ compensation premiums or withhold taxes for workers whom the state believes are employees and not independent contractors.
Compliance issues are at the front of every manager's and fiduciary’s mind these days. It used to be that all the worry came from a creative plaintiffs’ bar calling a business's conduct into question, but those days are long gone. Public and private companies are investigated by not only the United States federal government, but also local, state, and foreign governments. Self-regulating entities also add a layer of scrutiny. Under the insulation of the attorney-client privilege, an effective internal investigation can help marshal the facts to inform corporate decisions about past or existing violations and prevent potential future violations. An internal investigation can protect management from the violation and records the company's response to an incident or violation. However, most importantly, it serves to send a clear message that the company is serious about compliance and that it sets transparency as a priority. This webinar surveys recent compliance trends and discusses best practices regarding the attorney-client privilege, joint defense agreements, the use of experts, witness interviews, the consequences of self-disclosure and how to control the impact on the company.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/internal-investigations-101-2021/
www.sba.gov. The U.S. Small Business Administration (SBA) provides programs for businesses in the areas of technical assistance, training and counseling, financial assistance, assistance with government contracting, disaster assistance recovery, advocacy laws and regulations, civil rights compliance, and special interests, such as women, veterans, Native Americans, and young entrepreneurs. The website provides links to numerous information resources.
www.score.org. The Service Corps of Retired Executives (SCORE) is dedicated to helping small businesses get off the ground, grow and achieve their goals. SCORE provides volunteer mentors, free confidential business counseling, free business tools, and inexpensive or free business workshops.
PEO companies bill for their services in many different ways, which can be confusing and difficult for even the most seasoned broker to understand. The Guide to Understanding PEO Billing Reports provides a breakdown of both bundled and unbundled PEO bills, including how they’re organized and how the items on the invoices should be calculated.
In this eGuide, you will learn how to:
- Break down your clients' PEO reports effectively
- Find the “hidden fees” in bundled billing
- Save your clients by saving them money
Underpayment of wages is not a new phenomenon. However, the recent proliferation of what is being called
wage theft is occurring across a range of occupations, labour market segments and
business models.
Employers who underpay workers could be forced to name and shame themselves with public signs admitting their wage theft as part of industrial relations reforms Attorney-General Christian Porter is considering.
Businesses which fail to prevent wage underpayment could also be banned from hiring migrant workers for a period of time, and company directors disqualified from holding office.
Compliance issues are at the front of every manager's and fiduciary’s mind these days. It used to be that all the worry came from a creative plaintiffs’ bar calling a business's conduct into question, but those days are long gone. Public and private companies are investigated by not only the United States federal government, but also local, state, and foreign governments. Self-regulating entities also add a layer of scrutiny. Under the insulation of the attorney-client privilege, an effective internal investigation can help marshal the facts to inform corporate decisions about past or existing violations and prevent potential future violations. An internal investigation can protect management from the violation and records the company's response to an incident or violation. However, most importantly, it serves to send a clear message that the company is serious about compliance and that it sets transparency as a priority. This webinar surveys recent compliance trends and discusses best practices regarding the attorney-client privilege, joint defense agreements, the use of experts, witness interviews, the consequences of self-disclosure and how to control the impact on the company.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/internal-investigations-101-2021/
www.sba.gov. The U.S. Small Business Administration (SBA) provides programs for businesses in the areas of technical assistance, training and counseling, financial assistance, assistance with government contracting, disaster assistance recovery, advocacy laws and regulations, civil rights compliance, and special interests, such as women, veterans, Native Americans, and young entrepreneurs. The website provides links to numerous information resources.
www.score.org. The Service Corps of Retired Executives (SCORE) is dedicated to helping small businesses get off the ground, grow and achieve their goals. SCORE provides volunteer mentors, free confidential business counseling, free business tools, and inexpensive or free business workshops.
PEO companies bill for their services in many different ways, which can be confusing and difficult for even the most seasoned broker to understand. The Guide to Understanding PEO Billing Reports provides a breakdown of both bundled and unbundled PEO bills, including how they’re organized and how the items on the invoices should be calculated.
In this eGuide, you will learn how to:
- Break down your clients' PEO reports effectively
- Find the “hidden fees” in bundled billing
- Save your clients by saving them money
Underpayment of wages is not a new phenomenon. However, the recent proliferation of what is being called
wage theft is occurring across a range of occupations, labour market segments and
business models.
Employers who underpay workers could be forced to name and shame themselves with public signs admitting their wage theft as part of industrial relations reforms Attorney-General Christian Porter is considering.
Businesses which fail to prevent wage underpayment could also be banned from hiring migrant workers for a period of time, and company directors disqualified from holding office.
The issue of whether workers should be classified as employees or independent contractors for federal employment tax purposes has been a source of controversy for decades. The saga continues. This article summarizes a recent Tax Court decision on the classification of a manager in the home care industry.
An optimum guidance on outsourcing tax preparation services and solutions at Cogneesol.com, A Business Outsourcing Company based out of California, United States.
Randall Webb - TJSDD - Common Pitfalls and Deficiencies Found in Plan AuditsDowney Brand LLP
At the 2015 Savannah Fiduciary Seminar, Randall Webb of TJS Deemer Dana presented the most common deficiencies identified during plan audits and how plan sponsors should correct those deficiencies going forward.
HunterMaclean ERISA and employee benefits attorney Rebecca Sczepanski made this presentation at the 2015 Savannah Fiduciary Seminar. Her presentation covered a summary of the legal issues regarding fiduciary status, including how to identify ERISA and state law fiduciaries. She provided tips for avoiding or mitigating risks associated with defined plan fiduciary status as well as an update on major fiduciary litigation.
This information sheet provides general information for employees of companies in receivership. Employees should also read ASIC’s information sheet INFO 54 Receivership: a guide for creditors. For more info, visit: http://www.svpartners.com.au
This information sheet provides general information on insolvency for directors whose companies are in financial difficulty, or are insolvent, and includes information on the most common forms of external administration.
Rick Pummill - TRPC - Effective Plan Design and AdministrationDowney Brand LLP
In his presentation at the 2015 Savannah Fiduciary Seminar, Rick Pummill of The Retirement Plan Company presented on how to make 401(k) or Defined Contribution Plan operations more effective, from design tips to electronic delivery of disclosures.
How to Avoid Costly Wage and Hour Pitfalls for the Hospitality Industry Emplo...EPAY Systems
Litigators from Seyfarth Shaw, the top U.S. labor law firm, as they share do’s, don’ts, tips, and traps for employers in the hospitality industry. The labor law attorneys from Seyfarth Shaw, LLP–the country’s top wage and hour litigator–share their best advice for minimizingg compliance risk for employers just like you.
If a company is in financial difficulty, its shareholde
rs, creditors or the court can put the company into
liquidation.
This information sheet provides general informa
tion for employees of companies in liquidation.
Employees should also read ASIC information sheet INFO 45. for more info, visit: http://www.svpartners.com.au/uploads/197.pdf
IRS Payroll Tax Debt can be collected against business entities and individuals who are responsible for the financial obligations of a business. Just because a business is a Corporation, Limited Liability Entity or Non-Profit. This does not mean that the IRS cannot pursue collection against others under the Internal Revenue code 6672.
Many business owners, officers, investors, directors, members are under the belief that if the business Incorporates, is a limited company that they are protected individually for the business and financial obligations of the entity. NOT FOR PAYROLL TAX DEBTS. Payroll debts not dischargeable in a Bankruptcy either. Read the slideshare presentation for more information.
Presentation on Employer obligations (Australia).
The contents of this presentation are for information purposes only and do not constitute legal advice.
If you have any particular concerns or queries, please contact our office for specific advice.
The issue of whether workers should be classified as employees or independent contractors for federal employment tax purposes has been a source of controversy for decades. The saga continues. This article summarizes a recent Tax Court decision on the classification of a manager in the home care industry.
An optimum guidance on outsourcing tax preparation services and solutions at Cogneesol.com, A Business Outsourcing Company based out of California, United States.
Randall Webb - TJSDD - Common Pitfalls and Deficiencies Found in Plan AuditsDowney Brand LLP
At the 2015 Savannah Fiduciary Seminar, Randall Webb of TJS Deemer Dana presented the most common deficiencies identified during plan audits and how plan sponsors should correct those deficiencies going forward.
HunterMaclean ERISA and employee benefits attorney Rebecca Sczepanski made this presentation at the 2015 Savannah Fiduciary Seminar. Her presentation covered a summary of the legal issues regarding fiduciary status, including how to identify ERISA and state law fiduciaries. She provided tips for avoiding or mitigating risks associated with defined plan fiduciary status as well as an update on major fiduciary litigation.
This information sheet provides general information for employees of companies in receivership. Employees should also read ASIC’s information sheet INFO 54 Receivership: a guide for creditors. For more info, visit: http://www.svpartners.com.au
This information sheet provides general information on insolvency for directors whose companies are in financial difficulty, or are insolvent, and includes information on the most common forms of external administration.
Rick Pummill - TRPC - Effective Plan Design and AdministrationDowney Brand LLP
In his presentation at the 2015 Savannah Fiduciary Seminar, Rick Pummill of The Retirement Plan Company presented on how to make 401(k) or Defined Contribution Plan operations more effective, from design tips to electronic delivery of disclosures.
How to Avoid Costly Wage and Hour Pitfalls for the Hospitality Industry Emplo...EPAY Systems
Litigators from Seyfarth Shaw, the top U.S. labor law firm, as they share do’s, don’ts, tips, and traps for employers in the hospitality industry. The labor law attorneys from Seyfarth Shaw, LLP–the country’s top wage and hour litigator–share their best advice for minimizingg compliance risk for employers just like you.
If a company is in financial difficulty, its shareholde
rs, creditors or the court can put the company into
liquidation.
This information sheet provides general informa
tion for employees of companies in liquidation.
Employees should also read ASIC information sheet INFO 45. for more info, visit: http://www.svpartners.com.au/uploads/197.pdf
IRS Payroll Tax Debt can be collected against business entities and individuals who are responsible for the financial obligations of a business. Just because a business is a Corporation, Limited Liability Entity or Non-Profit. This does not mean that the IRS cannot pursue collection against others under the Internal Revenue code 6672.
Many business owners, officers, investors, directors, members are under the belief that if the business Incorporates, is a limited company that they are protected individually for the business and financial obligations of the entity. NOT FOR PAYROLL TAX DEBTS. Payroll debts not dischargeable in a Bankruptcy either. Read the slideshare presentation for more information.
Presentation on Employer obligations (Australia).
The contents of this presentation are for information purposes only and do not constitute legal advice.
If you have any particular concerns or queries, please contact our office for specific advice.
Are you classifying your workers correctly? There are times when you must pay someone as an Employee, and times when you can pay them as an Independent Contractor. Learn the differences so you don't run afoul of IRS rules!
Five Common Questions About Deferred CompensationCBIZ, Inc.
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Corporate deferred compensation plans for highly compensated employees are a planning tool that companies and key executives should explore. They are attractive because of the significant increase in ordinary income tax rates on compensation. Such plans are also a fringe benefit that can attract and retain key executives.
Coronavirus emergency loans via cares act -small business guide & che...Mark Weber
Banks are still waiting for guidance from the regulatory agencies as to how these loans are to be administered and which banks will be able to provide the loan. It may take up to two weeks before they can begin accepting applications. The recommendation is to make contact with your banking relationships ASAP since there will be a lot of asks coming in short order. You should tell the bank that you plan to apply and ask for updates as they learn more.
The term “fringe benefit” refers to any benefit provided to
an employee that is in addition to money. All benefits provided
to an employee are taxable unless the law specifically
excludes or defers tax on the benefit.
Startup Your Startup: Tips and Tricks for Founders at the Starting LineDavid Ehrenberg
When it comes to setting up your business, there are a lot of t's to cross and i's to dot before you can take off. This presentation, from Justworks and Early Growth Financial Services, provides a handy checklist of those things you need to consider and take care of (properly!) when you're starting up, including setting up an EIN, securing SUI, choosing your corporate entity, registering trademarks, and more.
Reply 1 OdellaThe difference between an employee and an indep.docxaudeleypearl
Reply 1
Odella:
The difference between an employee and an independent contractor, is how the employer pays them and how their taxes are paid. An employee is paid by the hour, salary, commission or combination of both. An employee also could get overtime. An employee receive a W-2 form, which shows their yearly income. The reason that they receive a W-2, because their employer withhold federal and state income taxes and FICA taxes, which is social security and medicare.
An independent contractor is provided a 1099, the employer that they do work for does not withheld their federal, state and FICA taxes from the amount the company pay's them. An independent contractor is liable for their own income taxes, which is called self-employment. However, an independent contractor works without the legal amenities that will protect them, but an employee does. For example, wage and hour laws, workers compensation and unemployment benefits.
There have been several cases, that have led to companies being penalized, by the mis-classification of their employees. When an employer mis-classify an employee, they would label he/she as an independent contractor; because this will disable the company in paying taxes on employees. Such as unemployment taxes, unemployment insurance and workers compensation.
When companies mis-classify their employees, will cause an effect on the state and federal government. That is short changing them on their tax revenue by millions of dollars. With mis-classifying employees, this will be a legal and ethical issue. For instance, the reason why companies will mis-classify an employee and an independent contractor is, to save on labor costs. Labor costs is a major portion of the company. overhead.
Mis-classifying workers has a big negative result at the end, for the company. For example, when a company intentionally classify employees as independent contractors; it becomes unethical. This is a fraudulent act toward the state and federal governments.
As a result, the state and federal have taken action to penalize companies, who have been mis-classifying their employees. The IRS have implemented some test in reference to decipher an employee from an independent contractor. The test consist of behavioral control, financial control and type of responsibility.
Fines are generated from the U.S. Department of Labor (DOL), IRS and other state agencies. Some of the fines that companies are responsible for is, back pay on taxes, interest on employees' wages and FICA taxes that were not withheld. Failure to make payments to the government, can produce additional fines.
Reference
Post, J. (2018, September 20). Worker Classification: What You Need to Know about Employee vs. Contractor. Retrieved from https://www.businessnewsdaily.com/770-contract-vs-employees-what-you-need-to-know.html.
Reply 2
Zach:
To safeguard against misclassification of workers, the IRS has compiled a list of 20 factors to help individuals and employers understand th ...
Healthcare Reform – The State of the Union AlphaStaff
Participants will be brought up to date on implementation of the Affordable Care Act’s provisions. What’s been implemented in 2012 and what’s on the way for 2013 and 2014. Employers will learn about the pre-existing condition, claims and appeals, automatic enrollment and “play or pay” provisions of the law. Presented by Jackson Lewis.
Employee Leaves of Absence: A high-level discussion of the issues surrounding employees' extended absences, including a survey of jurisdictions with mandated paid leave and a detailed discussion of the EEOC's position with respect to extended leave as a reasonable accommodation.
FMLA/ADA: A practical, scenario-based discussion regarding extended leaves of absence and how they are regulated by application of the FMLA, the ADA and other applicable laws and regulations.
New and Proposed Regulations: A timely discussion of recently issued and proposed regulations and their impact on employers, including the FLSA "white collar" exemptions, independent contractor misclassification, and the EEOC's new interpretation of Title VII.
New and Proposed Regulations: A timely discussion of recently issued and proposed regulations and their impact on employers, including the FLSA "white collar" exemptions, independent contractor misclassification, and the EEOC's new interpretation of Title VII.
Employee Leaves of Absence: A high-level discussion of the issues surrounding employees' extended absences, including a survey of jurisdictions with mandated paid leave and a detailed discussion of the EEOC's position with respect to extended leave as a reasonable accommodation.
FMLA: A practical, scenario-based discussion regarding extended leaves of absence and how they are regulated by application of the FMLA, the ADA and other applicable laws and regulations.
This week we covered Accounting and Payroll liabilities and the diff.pdffashionfolionr
This week we covered Accounting and Payroll liabilities and the different classifications that fall
under them. We also deductions, register, and earning records. State the definition of liabilities.
Describe the difference between accounting and payroll liabilities. Discuss the implications of
not adhering to the regulations of payroll liabilities.
Solution
Liabilites are the financial obligations which arise over the course of buisness proceeding to be
paid in foreseable future by the company.
Accounting liabilities include loans, accounts payable, mortgages, deferred revenues and
accrued expenses which are created because of business transactions
Payroll liabilities include items which are deducted from the payroll of emplpoyees and typically
include taxes withheld from employees, such as federal and state income tax, Social Security tax,
401k retirement fund contributions, , health insurance contributions Medicareunion dues, and
payroll garnishments
Failure to deposit payroll taxes can lead to action agains the company as well the person
responsible for paying those money into the trust of the government for these purpose. Penalty is
also imposed as follows:
Days late Penalty
1 to 5 days 2%
6 to 15 days 5%
16 or more days 10%
Also applies to deposits made within
10 days of the date of the first IRS
notice requesting the tax.
Amounts unpaid more than 10 days after the date of the first IRS notice requesting the tax, or the
day when you received notice and demand for immediate payment, whichever is earlier would be
taxed penalised at 15%.
1099 v. W-2 Employees: What to Know and Why It Matters
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Presented at the April 2012 Lighthouse Speaker Series (http://lighthousegrowthresources.com/speaker_series.html)
www.lighthousegrowthresources.com
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The rules of evidence permit only that which is deemed relevant and trustworthy to be received by the jury.
This presentation will provide you with a comprehensive review of the rules of evidence that come up most frequently. With memorable hypotheticals to trigger fast recall, you'll be able to think fast on your feet and use the rules to your advantage, both before and during trial.
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If that same case came up in 21st Century tax court, Eva Marie Saint and Karl Malden could’ve stayed at home rather than serving as Marlon Brando’s cheering section, because government prosecutors could reconstruct the ILA’s income, based on the records retention requirements in Section 6500 et seq.
In other words, the conventional wisdom that only divine beings can create something out of nothing does not apply in income tax evasion cases. Is it enough for the government to pull a metaphorical rabbit out of a metaphorical hat, or are there some additional requirements?
In this presentation, I walk you through a fictitious contracts fact pattern identifying all of the issues along the way and applying the rule of law to the facts in order to demonstrate how a judge would rule.
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Cross-examination rarely covers everything a witness knows about the case. Chapters sometimes relate to each other. Sometimes the transition from one chapter to another is not smooth and seamless but abrupt. What can be said about this method is that there is a beginning and an end to each chapter. The beginning and end are mapped out well in advance of the cross. The chapters are designed to maximize the good evidence available. As a result, chapters end on a high note.
A trial is a book of information. Witnesses themselves are a reservoir of information. The individual topics within the cross make up the individual chapters of the book. Each chapter has a purpose or goal. The jurors should be able to understand the purpose of each chapter as the attorney groups related facts into one logical and coherent sequence, designed to paint one picture.
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3. Introduction
• The cost of paying human capital is among the
largest burdens for most businesses. For good
companies that value quality employees, this
is a solid investment – after all, strong workers
can make or break a business. For their less-
scrupulous peers, however, paying for
employees is an obnoxious pain that simply
stands in the way of more necessary spending.
4. Introduction
• This disdain for covering employee costs has,
over time, developed into a startling and
unfortunate trend: employee
misclassification.
5. Introduction
• A W-2 employee costs a company quite a lot.
In many jurisdictions, there are requirements
related to benefits and paid vacation time,
and employers are required to pay a portion
of employee tax obligations.
6. Introduction
• An independent contractor, however, doesn't
come with any of these costs. Benefits aren't
required, vacation time is rarely provided, and
the employee pays all of his own taxes. Win-
win, right?
7. Introduction
• Wrong. Employee classification isn't just a
whim left up to an employer; it's based on
federal laws that cover aspects of a work
environment like scheduling and control over
assignments.
8. Statistics
• Despite this, many employers continue to
misclassify employees for personal gain – a
2000 study found that 10% to 30% of
employers have misclassified workers. Further,
the same study found that 95% of workers
who believed they were misclassified were,
indeed, improperly categorized.
9. Statistics
• Additional examinations have indicated that
current rates of misclassification may be even
higher than previously suspected
• In Ohio, misclassifications increased by 53.3%
from 2008 to 2009, while Illinois reported an
increase of 21% from 2001 to 2005.
10. Statistics
• These statistics paint a dire picture, but the
government is adamant that they are cracking
down on this alarming trend.
• In 2011, the Department of Labor collected
over $5,000,000 in back wages for 7,800
employees.
11. The Skinny
• If you think you may be misclassified, or have
a client that is misclassified, here's what you
need to know – and what you can do about it.
12. The Importance of Proper
Classification
• Income tax, Social Security, FICA, and FUTA are
among the irrefutable realities of paying
employees or earning wages. All W-2 employees
are required to have these amounts withheld
from their paychecks – but the same is not true
for independent contractors.
• While this amount varies from one state to
another, this can result in 20% or more of an
employees' paycheck in withholdings each
payday.
13. Trust Fund Taxes
• The IRC requires payors to withhold for taxes
amounts paid to certain individuals.
• The most commonly encountered example is
where an employer must withhold from an
employee’s wages the employee’s federal
income taxes and the employee’s share of
FICA taxes.
14. Trust Fund Taxes
• The withheld taxes are referred to as “trust
fund” taxes.
• The theory is that the employer has “paid
those amounts to the employee so that the
employer is no longer entitled to the amounts
and, by retaining the amounts, holds them in
trust for the government until they are paid
over to the government to be applied to the
employee’s tax accounts.”
15. Trust Fund Taxes
• Even though the funds are designated “trust”
funds, there is no requirement that after
withholding and prior to remitting to the
government, that the funds actually be held in
some type of segregated trust fund or
account.
16. Trust Fund Taxes
• Prior to being turned over to the government,
the employer holds the funds and can use
them for any purpose whatsoever, although
the person or persons directing their use for
purposes other than payment of the trust fund
tax can be liable for this TFRP or even a
collateral criminal penalty (S 7202).
17. Trust Fund Taxes
• The government must credit the employee
with the amount withheld even if the
employer does not remit the withheld
amounts to the IRS.
18. Trust Fund Taxes
• The following is a good example of the courts’
view of the trust fund tax and the employer’s
responsibility:
– The withholding taxes “are part of the wages of the
employee, held by the employer in trust for the
government”; the employer, as a function of
administrative convenience, extracts money from a
worker’s paycheck and briefly holds that money
before forwarding it to the IRS. **** A delinquency in
trust fund taxes thus is not simply a matter between
the IRS and an employer, but rather involves
employee wages.
19. Trust Fund Taxes
– The significant responsibility *** is summed up by
then-Judge Cardozo’s famous statement that “[a]
trustee is held to something stricter than the
morals of the market place. Not honestly alone,
but the punctilio of an honor the most sensitive, is
then the standard of behavior.”
20. Trust Fund Taxes
• Here is an example:
– Employer owes Employee $ 500 for wages and, based
upon the withholding requirements, must withhold $
50 for the employee’s income taxes (based on the
employee’s W-4 and the related withholding tables)
and $37.50 for the employee’s share of FICA.
Employer writes a check to Employee for $ 412.50 ($
500 - $ 87.50). Employer is deemed to have withheld
the $ 87.50 from the payment and is required to turn
that over to the IRS. It does not matter whether or not
Employer in fact withheld. Indeed, Employer may have
only had $ 412.50 to pay the employee and that’s all
he paid. Nevertheless, Employer is deemed to have
withheld the $ 87.50.
21. Trust Fund Taxes
– The employer is liable for the $ 87.50. Failure to pay
over the $ 87.50 to the IRS subjects the person or
persons within the employer’s organization
responsible for the failure to do so to the trust fund
recovery penalty (TFRP). When the employer fails to
pay the trust fund taxes, it will usually also fail to pay
the employer’s related taxes – specifically, the
employer’s portion of FICA. However, the employer’s
portion is not a trust fund tax. In other words, it’s not
another person’s liability which is satisfied through
withholding.
22. Trust Fund Taxes
• In this example, even if the withheld taxes are
not paid, the employee will be credited
against his income tax and credit for payments
into the social security system for FICA.
Essentially, the employer is the withholding
agent for the government.
23. Trust Fund Taxes
• Not surprisingly, given the amount of dollars
in the system for trust fund taxes, the IRS has
a vested interest in encouraging compliance
with requirements for withholding and paying
over to the IRS.
• As such, the IRS has major compliance
functions in place to deal with potentially
delinquent withholders.
24. Trust Fund Recovery Penalty
• Section 6672 imposes civil liability upon
certain persons other than the employer for
unpaid trust fund taxes.
• The Code refers to the liability as a “penalty,”
but it is merely a tool to enforce collection of
the trust fund taxes.
25. Trust Fund Recovery Penalty
• Although the liability is related to the
underlying trust fund taxes, it is still a liability
separate and apart from them.
• The liability is frequently referred to as the
Trust Fund Recovery Penalty (TFRP).
26. Trust Fund Recovery Penalty
• The circumstances giving rise to the penalty is
that the employer is late in turning over the
trust fund taxes to the IRS and then is unable
to pay them.
• When a business falls on hard times and is
experiencing cash flow problems, the principal
person or persons managing the business may
attempt to keep the business afloat by using
the trust fund taxes to satisfy what he
perceives to be a far more urgent need.
27. Trust Fund Recovery Penalty
• The expectation is that the cash flow problem
will disappear and that the trust fund tax will
be paid later.
28. Trust Fund Recovery Penalty
• The withholding taxpayer often views his
intervening use of the trust fund tax proceeds
as a temporary fix to get through a “rough
time,” with every intention of eventually
paying it.
• If the business succeeds or the withholding TP
otherwise pays the delinquent taxes (with
interest on the delinquent payments),
everybody lives happily ever after.
29. Trust Fund Recovery Penalty
• But if the business goes belly up with the IRS
holding the bag, as is too often the case,
things go south fast.
• Section 6672 imposes civil liability – the TFRP
– for the unpaid trust fund taxes upon those
individuals who had the responsibility to
ensure that the withheld taxes were paid over
to the government for the trust fund taxes
instead of being used for other purposes.
30. Trust Fund Recovery Penalty
• An individual is subject to the TFRP if he:
– Was “required to collect, truthfully account for,
and pay over,” and
– Willfully failed to do so.
• The statute refers to the liability as a penalty
but it is actually just a secondary tax collection
mechanism for employers who fail to remit
the withheld taxes to the IRS.
31. Trust Fund Recovery Penalty
• A person who is subject to the TFRP may have
direct liability for the trust fund tax, as well as
other taxes of the employer.
• Under most states’ general partnership laws, a
partner in a partnership is generally liable for
the trust fund taxes as general partners
separate and apart from the TFRP and
assessing the TFRP might be unnecessary.
32. The Importance of Proper
Classification
• Why is this significant? In 2011, the
Department of the Treasury estimated that
every employee misclassified as an
independent contractor saves a company
nearly $4,000 in employment taxes and
$43,007 in salaries and wages.
33. The Importance of Proper
Classification
• This trend has likely only risen after the
Affordable Care Act was phased in. As
employers meeting specific regulations are
required to provide insurance for their
employees, this only adds to the expenses
accrued to keep people on the payroll.
34. The Importance of Proper
Classification
• Employers benefit when misclassifying, but
the opposite is true for employees.
35. The Importance of Proper
Classification
• In addition to an increased tax burden,
independent contractors also lose the benefits
associated with employment, such as:
– Unemployment insurance;
– Worker's compensation for injuries;
– Minimum wage and overtime protections;
– Coverage under FMLA; and
– The safeguards of employment equality laws, like
the Age Discrimination in Employment Act and the
Civil Rights Act.
36. The Importance of Proper
Classification
• Law-abiding businesses are hurt by the
negligence of others, as well.
37. The Importance of Proper
Classification
• One study found that
misclassifying employees can increase the
costs of unemployment taxes and workers'
compensation premiums based on the
adjustment of participants in the general pool.
38. The Importance of Proper
Classification
• Part of the costs associated with employee
benefits may shift to the general public, too
• For example, underpaid contractors not
eligible for insurance at work may opt instead
for public assistance.
• And while seemingly insignificant, businesses
that save money through illegal classifications
gain a competitive advantage, too
39. Employees vs. Contractors
• Under the law, there are four available
employment classifications:
–Independent contractor,
–Common-law employee,
–Statutory employee, and
–Statutory non-employee.
40. Employees vs. Contractors
• While there are similarities and differences in
all of these categories, the major difference
separating employees from contractors is the
element of control.
• An employer has the ability to dictate the
work to be done, who should be doing it, how
it is to be done, and what the end result
should be.
41. Employees vs. Contractors
• This means that if an employer tells you that
you personally must prepare a sales report
using the data included in your sales reporting
systems to be completed fully and accurately
by the end of the workday, this is completely
and fully his right.
• As long as this direction or element of control
is present, an employee-employer relationship
exists, even if one or both parties wish to
classify this relationship as something else.
42. Employees vs. Contractors
• A contract or other signed agreement does
NOT have the power to supersede the law.
• This is what’s known as the “substance over
form doctrine.”
• Time for a slight digression to expand on this
doctrine.
43. Employees vs. Contractors
• The “substance over form
doctrine” maintains that the “substance,”
rather than the form, of a transaction is what
governs the tax consequences of a
transaction.
• Generally, the effect of applying the doctrine
is to produce a tax result that differs from the
tax result that its form would otherwise
demand.
44. Employees vs. Contractors
• The substance over form doctrine arose from
the Supreme Court case Gregory v. Helvering,
293 U.S. 465 (1935), where the Court held
that, “as a general rule, the incident of
taxation depends on the substance rather
than form of the transaction.”
45. Employees vs. Contractors
• Since that 1935 case, various courts have
disallowed a tax benefit associated with a
transaction that has a form that differs from
its substance.
• Historically, the government has relied on this
doctrine to target schemes where taxpayers
have intentionally mischaracterized a
transaction in order to derive beneficial tax
treatment.
46. Employees vs. Contractors
• Should the shoe be on the other foot and the
worker himself be given the right to direct and
control the work to be done, the hours during
which work can be completed, and who
physically performs the work, these aspects
are far more indicative of an independent
contractor role.
47. Employees vs. Contractors
• What this means: An employer can offer a
project to a contractor, so long as the terms
on which the project is completed are
controlled primarily by the contractor, not the
employer.
48. Employees vs. Contractors
• In order to make this boundary a little clearer,
the IRS published 20 factors, weighed in terms
of their importance and applicability, that can
be used to help businesses and workers
understand where they stand.
49. Employees vs. Contractors
• In general, if the answer to most or all of these
questions is "yes," the worker is an employee.
• If most or all of these questions can be
answered with "no," the employee can likely
be classified as an independent contractor.
50. Employees vs. Contractors
• The main points are:
– Is the worker required to follow instructions
regarding where, when, and how he is supposed
to work?
– Is the worker provided with training prior to
beginning work, like meetings, seminars, or other
correspondence?
– Are the services offered by a worker integral to
business operations and ongoing business
success?
51. Employees vs. Contractors
–Must any services be personally provided?
–Are any assistants hired, supervised, and
paid?
–Is there an ongoing relationship between
the hiring body and worker?
–Does the service consumer set duty or work
hours?
52. Employees vs. Contractors
–Is the time committed by the worker
performing services roughly equivalent to
full-time hours?
–Is work performed on the premises of the
service consumer? (While plenty of workers
do perform work at third-party sites and
can still be considered employees, offsite
work often suggests greater freedom. The
applicability of this point will largely depend
on the work being performed.)
53. Employees vs. Contractors
– Must services or jobs be performed in a set order
or sequence?
– Are oral or written progress reports required in
the course of performing tasks?
– Is the worker being paid on an hourly, weekly, or
monthly basis, versus a lump sum or commission
payment?
– Are business travel expenses covered by the
service consumer?
54. Employees vs. Contractors
–Is the worker provided with significant tools
and resources to complete work, like a
computer or mobile phone?
–Does the service consumer invest in
maintaining a workspace for the worker?
–Does the worker have any protection from
liability in regards to the realization of profit
or loss from his services, separate from the
general liability that exists as an employee?
55. Employees vs. Contractors
– Does the worker provide services for a single
service consumer at a time, rather than piecework
for multiple parties? (Note that it is possible for
workers to be employees of more than one
company simultaneously, and that has no bearing
on worker classification.)
– Are any services offered by the worker not
available to the general public?
56. Employees vs. Contractors
– Does the service consumer have the ability to
release or discharge the worker?
– Is the worker able to terminate his labor
agreement at any time without consequence?
57. Employees vs. Contractors
• Note that most service consumer-worker
relationships in the U.S. are more
appropriately categorized as employee-
employer connections.
58. Employees vs. Contractors
• Due to the explicit nature of these questions
and the subsequent lack of confusion
associated with correct employee
classification, misclassification lawsuits are on
the rise – and progress has been seen.
59. Employees vs. Contractors
• FedEx, the international shipping carrier, was
the subject of one of these cases. The
outcome?
60. Employees vs. Contractors
• 2,300 workers previously considered
independent contractors were found to be
misclassified.
• FedEx argued that the drivers provide their own
trucks and didn't have to follow specific
routes, but the court determined that by
dictating hours, uniforms to be worn, and
mandatory company-provided training, FedEx
was exerting control inappropriate for
contractors.
61. Employees vs. Contractors
• In this case, the court made clear that
absolute control isn't required for employee
classification, just a certain amount above and
beyond what would be expected of an
independent contractor.
62. Employees by Statute
• In some cases, a worker may still be
considered an employee by title alone, even if
the control test questions demonstrate
otherwise.
63. Employees by Statute
• These roles include:
–Officers of corporations as well as
superintendents, managers, and other
supervisory personnel (note that corporate
directors are not generally considered
employees for their directorial duties)
64. Employees by Statute
–Statutory employees, including drivers
engaged in food service distribution,
employees who work from home according
to an employer's specifications, and full-
time traveling or city salesmen.
65. Employees by Statute
–FICA taxes must be withheld from statutory
employees if:
• The majority of services must be
provided by the worker in question;
• The worker doesn't have a substantial
investment in the tools and facilities
required to satisfy tasks; and
• Tasks are a part of an ongoing
relationship.
66. Employees by Statute
–Section 218 agreements, or workers of the
state or local government covered by
Section 218 of the Social Security Act.
67. Employees by Statute
• While statutory employees are considered
employees, statutory non-employees are not.
68. Employees by Statute
• Workers who fit into this classification include
–Real estate agents who operate
independently and make most income on
commission,
–Direct sellers, and
–Companion caregivers not employed by a
parent company.
69. Suspected Misclassification
• If you're reading this and thinking “well, this
isn't good,” either in regards to yourself or a
client, there are steps that can be taken to
right previous wrongs.
70. Suspected Misclassification
• First, it is suggested that those who believe
they are improperly classified to first speak
candidly with their employer. In some cases,
employers do not mean to misclassify workers
are not malicious about their practices, and
truly do not realize the issues at hand.
71. Suspected Misclassification
• However, this step should be taken on a case-
by-case basis, and workers concerned about
job security may not be ready to come
forward.
72. Suspected Misclassification
• The next step is to get the government
involved. By filing Form SS-8, Determination of
Worker Status for Purposes of Federal
Employment Taxes and Income Tax
Withholding, workers can request a
determination by the IRS.
73. Suspected Misclassification
• This form outlines many of the same
principles listed above, and even takes things
a step further, categorizing forms of support
into three distinct buckets:
74. Suspected Misclassification
– Behavioral Control: The presence of rules
regarding scheduling, training, tools, equipment,
and work performance
– Financial Control: Issues concerning who pays
workers’ expenses, like workspaces and
equipment, and how workers are paid (lump sum
vs. a standard paycheck)
– The relationship between the service consumer
and worker: The presence of advantages like
benefits or restrictions like non-compete or non-
disclosure agreements
75. Suspected Misclassification
• Upon receipt of Form SS-8 from a worker, the
IRS will then send the same form to the
service consumer to be completed.
76. Suspected Misclassification
• The case will be assigned a technician, who
will review both Forms and determine a ruling
based on the law.
• If a formal determination is issued by the IRS,
it is considered binding for all future cases
with the same set of facts.
• If an information letter is sent, this is not
binding but rather can be interpreted as
advisory.
77. Suspected Misclassification
• Note that the statute of limitations for a
refund continues to run during this time,
regardless of the preparation of Form SS-8.
78. Suspected Misclassification
• If a taxpayer is concerned about this, he is
encouraged to file Form 1040X, an amended
return, as soon as possible with the words
"Protective Claim" at the top and, under Part
III, Explanation of Changes, "Filed Form SS-8
with the Internal Revenue Service Office
in Holtsville, NY. By filing this protective claim,
I reserve the right to file a claim for any refund
that may be due after a determination of my
employment tax status has been completed."
79. How a Worker Should Handle an IRS
Determination of Worker Misclassification
• While it's possible to give the IRS a heads up
via Form SS-8, it's far more likely for the IRS to
note misclassification through a standard
business audit.
80. How a Worker Should Handle an IRS
Determination of Worker Misclassification
• One of the biggest red flags the IRS looks for –
and something that can actually trigger an
audit – is a substantial number of 1099-
MISCs with large numbers in Box 7 (Non-
employee compensation).
81. How a Worker Should Handle an IRS
Determination of Worker Misclassification
• For those found to be miscategorized who
have not yet filed taxes, the amount reported
on Form 1099 should be included on Line 7 of
Form 1040.
82. How a Worker Should Handle an IRS
Determination of Worker Misclassification
• FICA tax must then be calculated manually
using Form 8919, Uncollected Social Security
and Medicare Tax on Wages.
• Further, the taxpayer should include Form
4852, Substitute for Form W-2, Wage and Tax
Statement, to stand in for the W-2 that should
have been provided.
83. How a Worker Should Handle an IRS
Determination of Worker Misclassification
• If taxes were already filed, Form 1040X will be
required to amend the original filing and
request a refund of any self-employment tax
paid.
• If a W-2 is eventually offered, an additional
amendment may be suggested.
84. How a Worker Should Handle an IRS
Determination of Worker Misclassification
• As FICA taxes are jointly paid, employers who
are working to change poor practices should
request employees fill out Form
4669, Statement of Payments Received, to
account for the portion a worker paid on his
own behalf.
85. How a Worker Should Handle an IRS
Determination of Worker Misclassification
• In some rare and unfortunate circumstances, a
change in classification may result in a
deficiency if a worker was taking deductions
on Schedules A or C that aren't permitted for a
W-2 employee to claim. There is no relief for
workers in misclassification cases, so these
changes will require an amended return and
further payment.
86. Suing the Employer for Additional
Penalties
• So, you were illegally misclassified and you're
mad about it. Now what?
87. Suing the Employer for Additional
Penalties
• In some cases, a lawsuit may be the
appropriate response. Under Section 7434,
there may be recourse for the victims of those
who knowingly file a fraudulent information
return.
88. Suing the Employer for Additional
Penalties
• Damages can range from $5,000 to the true
value of the damage that resulted from the
changes in filing status, as well as the cost of
bringing legal action, including reasonable
legal fees.
89. Suing the Employer for Additional
Penalties
• To win this kind of case, you must be able
to prove that:
–An information return (like a 1099-
MISC) was issued
–This return was fraudulent
–The return was issued willingly and
knowingly
90. Suing the Employer for Additional
Penalties
• A good faith belief that correct measures were
taken will remove the scent of fraud, but a
lack thereof can qualify. There is a time limit
on Section 7434 – six years from the date the
return is first filed or one year after the
fraudulent return would have been identified
through reasonable care – but the IRS has no
set limit to bring charges against an employer.
91. Whistleblower Awards
• The IRS has a long history of
rewarding whistleblowers who help with the
identification of tax fraud, and employee
misclassification is no different.
• Under Section 7623, rewards may be available
for those who provide actionable tips on
employee miscategorization.
92. Whistleblower Awards
• Should the IRS determine that any tips
provided contribute to judicial or
administrative action, the whistleblower may
be eligible to receive 10% to 30% of collected
proceeds.
93. Whistleblower Awards
• Anyone submitting information that could
result in a reward should file Form
211, Application for Award of Original
information.
• If the case is personal, this can be included
with Form SS-8.
95. The Ignorance Defense
• It's a common defense for companies
classifying workers incorrectly, and in many
cases it's true – or, it was true, at one point or
another.
• While some businesses certainly do set out to
defraud the government, most had misguided
albeit good faith reasons to begin to
misclassify workers in the first place.
96. The Ignorance Defense
• Those who really and truly did not mean to
escape the law have protection under Section
530 of the Revenue Act of 1978, which
safeguards those who made an honest
mistake in worker classification.
97. The Ignorance Defense
• To qualify for this protection, the following
must be true:
–A reasonable basis for treating employees
as contractors, like similar and frequent
behavior elsewhere in the industry
–Consistency in classification among all
workers in a similar position
–Reporting consistency
98. Classification Settlement Program
• While relief is available under Section 530, the
IRS also offers a Classification Settlement
Program, or CSP, to ease the burden. This
allows the IRS to support those with potential
misclassification issues early in the
administrative process to avoid the possibility
of appeals or litigation. In some cases, the IRS
must offer the option of a CSP for taxpayers to
reject or accept.
99. Classification Settlement Program
• In the CSP process, the IRS will first determine
if misclassification applies, as well as if Section
530 relief is appropriate.
100. Classification Settlement Program
• If any basis for miscategorization is found and
all 1099 paperwork was filed in accordance
with the law, the IRS may offer an adjustment
equal to 25% of any deficiency in the most
recent tax year under investigation.
101. Classification Settlement Program
• If there appears to be no sound reasoning for
classification and none of the requirements
under Section 530 are met, the service
consumer must pay 100% of the adjusted
amount for the most recent tax year.
• In both of these situations, employers must be
willing to reclassify their employees.
102. Classification Settlement Program
• CSP participation is optional, and service
consumers have the right to an Appeal or
administrative review.
103. Voluntary Classification Settlement
Program
• An alternative to the traditional CSP program,
the Voluntary Classification Settlement
Program is an option for those who voluntarily
come forward to report potential
misclassification before the IRS or Department
of Labor can intervene.
104. Voluntary Classification Settlement
Program
• The VCSP is a big incentive for those who
haven't been targeted yet; through VCSP,
companies are permitted to reduce their tax
liabilities to just over 1% of the wages paid to
reclassified workers while abating all penalties
and interest.
106. Requesting a Tax Court Determination
• When a Section 530 defense isn't an option
and a CSP is rejected, a tax court
determination under Section 7436 might be
an alternate pathway to consider.
107. Requesting a Tax Court Determination
• Section 7436 allows the U.S. Tax Court to
determine employment tax issues including
misclassification, as well as the calculation
of FICA, FUTA, and income tax.
• Section 7436 is only for service consumers;
workers are NOT able to argue status.
108. Requesting a Tax Court Determination
• A Section 7436 filing doesn't have to be the
first step; service consumers can start by
seeking an Appeal.
• In this process, the IRS will first send Letter
950-C, Employment Tax 30 Day Letter-WC, a
notice of adjustment to employment taxes.
109. Requesting a Tax Court Determination
• This can be accompanied by Form
13683, Statement of Disputed Issues, for
adjustments less than $25,000.
110. Requesting a Tax Court Determination
• Upon receipt, an employer can then submit a
letter to Appeals with a statement of any
disputed adjustments as well as the
background details and explanations to
support these assertions.
• After this, the employer will have a chance to
meet with an examiner before proceeding to
Appeals.
111. Requesting a Tax Court Determination
• If no response is filed within 30 days or if the
IRS Appeals process goes awry, the IRS will
likely respond with Letter 3523, Notice of
Determination of Worker Classification
(NDWC), indicating the misclassified
employees that need to be recategorized.
112. Requesting a Tax Court Determination
• If a service consumer would still like to fight
back, he has until the 91st day following the
postmark date on the NDWC to petition the
Tax Court.
113. Requesting a Tax Court Determination
• However, things may not get better in Tax Court; similar
to the 20-factor test used by the IRS, the Tax Court uses a
seven-factor test to determine employee classifications.
– The degree of control by the service consumer
– The source of facilities funding
– The opportunity for profit or loss
– The ability to discharge a worker
– Whether the work being performed is a part of the
service consumer's regular business
– The permanence of the relationship
– The relationship the parties believed they were
entering into
114. Requesting a Tax Court Determination
• If the amount being disputed is under $50,000
for each quarter, the taxpayer may be better
positioned to conduct a judicial review as an S
case, or a small claims case that falls under
the umbrella of Section 7436.
115. Requesting a Tax Court Determination
• These cases are smaller and less expensive,
but there's no arguing with the ruling: both
sides forfeit the right to additional appeals by
proceeding with an S case.
116. The Bottom Line on Classifications
• Employee misclassification steals billions of
dollars from the government every year and
hurts countless good employees just trying to
earn an honest living.
117. The Bottom Line on Classifications
• The best situation for everyone – except,
perhaps, for unscrupulous employers who
plan to go on being unscrupulous, laws be
damned – is to classify employees properly
the first time around, and to stay up to date
on rulings to be sure things don't change to
the detriment of you, your clients, or even
your company.