Presentation Transcript

1. 1099 or W-2?

   Or Is He / She an Employee or a Contractor?
2. IRS Priorities FY 2013 According to Jackson Lewis International Tax Avoidance Wage Issues Misclassification – Employee or Contractor Misclassification – Exempt or Non Exempt Underpayment - Overtime
3. Sources of Info Jackson Lewis – Seminar “The Texas 8-Step: Compliance Issues for Law Abiding Employers” October 19, 2012 Texas Workforce Commission “Especially for Texas Employers” 3rd Edition – pages 12–21 BNA, Inc. Vol. 10, Issue 125 July 1, 2010 “Ten Tips for Drafting Independent Contractor Agreements” United States Small Business Administration http://www.sba.gov/content/hire-contractor-or-employee IRS Pub 1779 Independent Contractor or Employee? IRS Publication 15-A (2012) Employee or Independent Contractor? US Supreme Court - United States v Silk, 331 U.S. 704 (1947)
4. State Laws – Texas Texas has adopted the previous IRS 20 factor test, which the IRS replaced with their current 3 factor test 20 Factor Test Is the service provided by the individuals essential to, and an integral part of, the service the employer provides to the public? What opportunity for profit or risk of loss is there for the worker? What kind of investment, other than time, does the worker have in the enterprise?
5. BNA 1. Names and Titles How the parties use labels is a fundamental indicator of intent. An agreement should state unequivocally that the person is performing services as an independent contractor, not an employee. Similarly, the agreement should be labeled as an independent contractor agreement or consulting agreement. Avoid employee-sounding nomenclature.” Example – DO NOT fill out form I-9 which requires address of “Employer”, “Date Employment Began”, etc.
6. Texas 20 Factor continued What is the compensation arrangement? Is the compensation negotiated or imposed by the employer? Does the individual provide his services to the public at large? Does he advertise his services in newspapers, the Yellow Pages, or specialized Journals? Is there a non-compete agreement? Does the worker provide his services on a continuous basis?
7. Texas – 20 Factor - Continued Is the worker required to provide services under the employer’s name? Does she represent herself to the public as being an employee of the employer? On whose behalf are the services provided? Cash Flow – how does the money get from the customer or client to the worker? Rent – employer normally provides the employee with everything necessary to do the job
8. Texas – 20 Factor - Continued Hours of Work – is the time the work performed according to a deadline or the hours set by the employer? Assignments – contractor receives assignments from a contract, employees receive assignments from an employer Insurance – who provides the liability insurance protection – the contractor or the employer? Advertising and Listings -
9. Texas – 20 Factor - Continued Benefits – vacation, sick leave, health insurance, worker’s compensation insurance, Termination of the relationship Employers may terminate employees at any time Employees may quit at any time Contractors must fulfill contract or be liable for “Breach of Contract” lawsuit and vice versa
10. U.S. v Silk 331 U.S. 704 (1947) Economic Reality Test The degree of control exercised by the alleged employer The extent of the relative investments of the alleged employee and employer The degree to which the “employee’s” opportunity for profit and loss is determined by the “employer” The skill and initiative required in performing the job The permanency of the relationship
11. IRS The Courts have considered many facts in deciding whether a worker is an independent contractor or a employee. These relevant facts fall into three main categories: Behavioral Control Financial Control Relationship of the Parties
12. Behavioral Control A worker is an employee when the business has the right to direct and control the worker Instructions – If, you receive extensive instructions on how the work is to be done, this suggests that you are an employee. How, when, or where to do the work What tools or equipment to use What assistants to hire to help with the work Where to purchase supplies and services
13. Financial Control Significant Investment – if you have a significant investment in your work, you may be an independent contractor. Expenses – if, you are not reimbursed for some or all business expenses, then you may be an independent contractor, especially if your unreimbursed expenses are high Opportunity for Profit or Loss – if you can realize a profit or incur a loss, this suggests that you are in business for yourself and that you may be an independent contractor
14. IRS – Relationship of the Parties Employee Benefits If, you receive them, you are an employee If, you don’t, you could be either Written Contracts Scope of services, expected completion date, standards, total willing to pay – indicates a contract relationship Lack of Written contract – especially hourly pay versus contract pay indicates an employee / employer relationship Right to Terminate Relationship – usually indicates an employee / employer relationship
15. Examples Joe the lawn boy Offers to mow your lawn every week for $50 Contractor – you may terminate or renew the contract based upon performance Bill the lawn boy You tell Bill – you want you lawn mowed every Saturday between 8 and 10 You will pay bill $25 per hour
16. 29 USC Chapter 9 – PORTAL-TO-PORTAL PAY Once an employee arrives at work, if, the work involves multiple locations and the employee must move to a new location to continue work, the transport time is considered “on the clock”
17. Protection General Rules Pay You pay employees with a check written to them personally, or cash You pay a contractor to a business name If, you pay by a time unit, it will be considered employee If, you pay by the job, it is considered contract (except when paying piece rate under FLSA)
18. What’s the Difference? Contractor Uses business name Has their own employees Maintains separate business checking account Invoices work completed Has more than one source of income Has own tools Sets own hours Keeps business records (Income / Expense) Employee Performs duties dictated or controlled by others Works for only one source of income Is given training in how to do the work Uses tools / equipment / supplies provided Is paid in time increments Is instructed when to work
19. Why Does it Matter If found guilty of misclassification – could put you out of business Back pay Back benefits Penalties (IRS) Social Security Medicare FUTA / SUTA Overtime 15 – 30% reward to employee who reports you