Category Archives: Business Resources
Posted On: 11-21-2016 | Posted By: WK Staff
The determination of whether a worker is properly classified as an employee or an independent contractor is an important issue, as the Internal Revenue Service, Department of Labor, state agencies and the courts continue to step up enforcement.
The IRS test often is termed the “right to control test” or “common law test,” as each factor is designed to evaluate who controls how work is performed. The more control a company exercises over how, when, where, and by whom work is performed, the more likely the workers are employees, not independent contractors. There is a 20-factor test the IRS uses in making its determination.
A worker does not have to meet all 20 criteria to qualify as an employee or independent contractor, and no single factor is decisive in determining a worker’s status. The individual circumstances of each case determine the weight the IRS assigns different factors.
The three most important factors IRS auditors are trained to consider are as follows.
- Instructions to worker: If you require him or her to follow instructions on when, where and how work is to be done, the worker probably should be classified as an employee.
- Job Training: If you provide or arrange for training of any kind, it is a sign you expect work to be performed in a certain way; therefore, the worker is an employee.
- Worker’s ability to make a profit or suffer a loss: An employee will always get paid; however, an independent contractor has a financial stake in his business.
To build a strong case, the company and worker should sign a written agreement and the pay should be by job or project versus time.
If the IRS considers a worker to be an employee because the employer has sufficient control over the worker to create an employment relationship, the IRS can hit you with a costly bill for the employment taxes you should have been withholding and paying.
There is also the reasonable basis test. This is considered a “safe harbor.” If you can show you had a reasonable basis for treating a worker as an independent contractor, the IRS is prohibited from reclassifying the worker as an employee either prospectively or retroactively. If one or more of the following conditions exists, the reasonable basis test is met:
- a court ruling in favor of treating workers in similar circumstances as non-employees;
- an IRS ruling (revenue ruling) stating that similar workers are not employees subject to employment taxes;
- an IRS Technical Advice Memorandum or Private Letter Ruling issued to your company, indicating a worker isn’t an employee;
- a past IRS payroll audit that didn’t find workers in similar positions at your company to be employees; or
- a longstanding, widely recognized practice in your industry of treating similar workers as independent contractors.
If you have any questions or concerns on whether you have classified your workers correctly, please contact a WK advisor for assistance at (573) 442-6171 or (573) 635-6196.
OTHER STORIES FOR YOU
EMPLOYEE OR INDEPENDENT CONTRACTOR? A 20-FACTOR TEST. The determination of whether a worker is properly classified as an employee or an independent contractor is an important issue, as the IRS, Department of Labor, and state agencies are stepping up enforcement. Below is the IRS’ 20-factor test employers can use to help classify workers appropriately.
IS THE WORK OPPORTUNITY TAX CREDIT AN OPPORTUNITY FOR YOUR BUSINESS? If your business meets certain criteria, you can significantly reduce your tax burden while giving a boost to veterans, the chronically unemployed and other targeted groups by taking advantage of the Work Opportunity Tax Credit (WOTC). The WOTC was created to increase and promote job creation and to decrease unemployment among specific groups of people.
EMPLOYMENT ELIGIBILITY VERIFICATION: THE EMPLOYER’S RESPONSIBILITIES. By federal law, employers have a responsibility to ensure their employees are eligible to work in the United States, and the government provides two tools for doing so: the Form I-9, which all employers are required to complete, and the E-Verify system, which is optional for some employers and required for others.
Posted On: 3-11-2015 | Posted By: WK Staff
Offering a retirement or health benefit plan to your employees can be an important part of your company’s recruiting and retention effort. These are not “set it and forget it” plans, however. Employers should be aware of their ongoing responsibilities as required by the Employee Retirement Income Security Act (ERISA).
Who has fiduciary responsibility?
ERISA applies to all private sector plans, but not public sector plans or those sponsored by churches. Under the law, plan sponsors have a “fiduciary responsibility” to administer retirement and health plans in accordance with the plan document and applicable laws, to act solely in the interest of plan participants and to prudently manage and diversify the assets under the plan. Prudence focuses on the on-going process of making, monitoring and documenting fiduciary decisions and responsibilities. Fiduciaries who do not follow the standards may be personally liable for plan losses as a result of their actions or non-actions.
Who, specifically, has fiduciary responsibility? Although every ERISA plan must list at least one person or entity as its fiduciary, the fiduciary responsibility extends to anyone who makes decisions regarding plan administration or asset management. It might be an individual, an administrative committee, a board of directors, or any combination of those. Anyone who has discretion over the plan could be considered a fiduciary.
Fiduciary responsibility for investment monitoring
Prudently managing assets means continuously monitoring investments to ensure expenses are minimized and investment options are diversified, not just at the initial selection of investments. This will be emphasized if the U.S. Supreme Court finds for the plaintiffs in Tibble v. Edison. In the Tibble case, petitioners allege that the California-based Edison International should have replaced three mutual fund options with others that were almost identical and less expensive and there is an on-going breach of fiduciary responsibilities that doesn’t end. If the Court agrees, all retirement plans will have to regularly review their plans to ensure they are meeting fiduciary obligations.
Regardless of the outcome in the Tibble case, plan sponsors would be smart to do their due diligence in monitoring the plan administration and asset management.
The IRS released final Repair Regulations in September 2013 to provide guidance on which amounts paid for materials and supplies, for repairs and maintenance, and for purchases of assets can be expensed and which must be capitalized. The final Repair Regulations apply to tax years beginning on or after January 1, 2014.
Helpful Repair Regulation Resources
- CCH Tax Briefing: IRS Releases Comprehensive Repair/Capitalization Final Regulations
- CCH Tax Briefing: Analysis of Comprehensive Repair/Capitalization Regulations
- Slides: Capitalization of Tangible Assets
- AICPA Repair Regulations Q&A
- Accounting Policy for Capitalization of Tangible Property Expenditures
Previous Client Alerts
Many tax advisors believe the Repair Regulations are the most dramatic changes in tax law to affect for profit businesses since the overhaul of the Internal Revenue Code in 1986. Complying with the law will be burdensome. Not only will many taxpayers need to file Form 3115, Application for Change in Accounting Method, for each accounting method change, but the filing will also need to be done for each separate entity, or trade or business.
WK advisors have completed many hours of research and training in order to learn the new concepts contained within the Repair Regulations. We’re posting some of the most relevant articles and resources below to help you better understand the Repair Regulations.
Please contact your WK advisor for additional guidance specific to your situation.