The Business of Serving Process

1. The Business ofServing Process Surviving Tax Audits by Doing Business the Right Way With Special Emphasis on the Employee / IC Dilemma

2. Goals • Improve Your Understanding of the Fundamentals of Doing Business • Apply that Understanding to theEmployee / Independent Contractor Dilemma

3. Topics • Business Structures • Licensing • Taxes • Government Audits and the IC

4. Business Structures • Today vs Tomorrow • Protecting Yourself • Who is Liable • Get Good Advice • Choose Wisely

5. Business Licensing • Local • City or County or both • State • Department of Licensing • Department of Revenue • Labor & Industries • Employment Security • Federal • None – At This Time

6. Business Licensing - Local • Purposes • Protect the Public • Taxation • Yearly Fee • B&O Tax • Property Tax – Real and Personal • City • Most Cities Require a Business License • Zoning Concerns • County • Not All Counties Require a License

7. Business Licensing - Federal • None – At This Time • Federal Trade Commission • Fair Debt Collection Practices Act • Employer Identification Number (EIN) • AKA Federal Tax Identification Number • Sole Proprietors Use Their SSN • Required for Non-corporeal Entities • Corporations • LLC • LLP • See http://www.business.gov/finance/taxes/registration.html

8. Business Licensing – Federal • Self Employment Taxes • Different from Income Tax • Combined Social Security Tax and Medicare Tax • Totals 15.3% • Employee Taxes • Federal Unemployment Tax – FUTA aka 940 • Federal Income Tax and Social Security Tax and Medicare Tax – aka 941 • Seehttp://www.business.gov/finance/taxes/employment.html

9. Business Licensing – State • Employee / IC Conundrum • Department of Licensing • Department of Revenue • Employment Security • Labor & Industries

10. Business Licensing - State • Department of Licensing • Master Business License • Receive Universal Business Identifier (UBI)

11. Business Licensing - State • Department of Revenue • DoL and DoR Talk to Each Other • DoR Learns of Your UBI • DoR Sends You Letter and Tax Guide • You Pay Taxes • Business & Occupation Tax (B&O) • Sales Tax / Use Tax • Use Tax is Sales Tax • Pay it With Your B&O

12. Business Licensing - State • Employment Security • ES and DoL Talk to Each Other • Purpose is to Provide a Cushion • Tax Consists of Two Parts • Experience Rating • Social Cost Factor

13. Business Licensing - State • Labor & Industries • Purpose is to: • Protect the Employee • Assure Medical Coverage • Assure Wages • Protect the Employer • Prohibits Suits by Employees • Tax Consists of Two Parts • Base Rate for Industry • Experience Rating

14. Employee vs IC • Employee • Employer has Full Control • Sets Work Hours • Controls All Work Conditions • Provides Tools • Provides Training • Independent Contractor • Employer (Contractee) has Little Control • Cannot Set Hours or Conditions • Provides Nothing (No Training, Tools, etc.)

15. Employee vs IC • Don’t Play Both Sides of the Street • Worker is Either One or the Other • IC’s Must Satisfy All Conditions • Government Hates the IC Concept

16. The Six Part Test • If you plan to treat your worker/subcontractor as an independent, make sure you can prove they are. • For your protection, you should always ask the person you are hiring to prove they are in business for themselves.

17. The Six Part Test • Supervision: Do they perform the work free of your direction and control? • Separate business: Do they offer services that are different from what you provide? Or, do they maintain and pay for a place of business that is separate from yours? Or, do they perform their service in a location that is separate from your business or job sites? • Previously established business: Do they have an established, independent business that existed before you hired? Documentation may include other customers or advertising.

18. The Six Part Test • IRS taxes: When you entered into the contract, was this person responsible for filing a tax return with the IRS for his or her business? • Required registrations: Are they up-to-date on their required Washington State business registrations? Ask the Dept. of Revenue if their business license (UBI) is active. If an employer, check their workers’ compensation account with L&I. • Maintains books: Do they maintain their own set of books dedicated to the expenses and earnings of their business?

19. Questions You Might be Asked • How did the worker obtain the job? • Do you have: • A contract • Invoices • W-9’s, W-2’s, 1099’s • Can you describe the work done by the worker? • Can you describe the work done by your business? • Can you explain the difference?

20. Questions - Continued • Can you explain why the worker is an IC and not an employee and vice versa? • What training do you provide the worker? • Who determines how the work is performed? • If there are problems with the assignment to whom does the worker report? • What types of reports are required from the worker? • Can you describe the worker’s daily routine or schedule?

21. Questions - Continued • What supplies or equipment is supplied the worker and by whom? • Does the worker lease equipment and if so from whom and what are the terms of the lease? • What expenses are incurred by the worker? • How are those expenses reimbursed and by whom? • What type of pay does the worker receive? • What economic loss (financial risk), if any, can the worker incur beyond normal loss of salary?

22. Question - Continued • What benefits are available to the worker? • Can the relationship be terminated by either party without incurring liability or penalty? • Does the worker perform similar services for others? • Is there a non-competition agreement with the worker? • Does the worker do any advertising? • How do you represent the worker to customers?

23. Questions - Continued • Who determines the worker’s territory? • Did the worker pay for the privilege of having the territory? • And on and on and on…….