In an effort to trim labor expenses, many businesses have cut costs by replacing employees with independent contractors. Some savings are certain-employers don’t pay employment taxes to the IRS or benefits to these workers. But with independent contractors, the risks-and the hidden costs-may reduce or even wipe out the savings!
This article focuses on seven legal myths, and what you can do to protect your business.
MYTH #1:
Employers should use the IRS’s “20 Common Law Factors Test” to determine worker status as employee or independent contractor. REALITY:
Companies relying on the “20 Common Law Factors Test” today risk costly fines and penalties for worker misclassification by IRS auditors.
The IRS is specifically targeting companies that laid off employees then hired back independent contractors to perform the same work (even those that rehired the same person as a contractor). Uncle Sam wants his payroll taxes, and to be safe you must classify your workforce properly, complying with the agency’s new tests.
MYTH #2:
Employers can avoid costly worker misclassification risks by complying with the IRS Worker Status Test. REALITY:
While it is important to learn the worker status rules under the various laws and regulations governing the workplace, just knowing that “all worker status tests are not the same” is an important first step in reducing legal risks.
MYTH #3:
You can avoid costly worker misclassification liability by complying with federal statutes and regulations governing the workforce. REALITY:
Even if your company complies with all the laws and regulations governing the workforce, you still risk liability for misclassifying workers as independent contractors who our Courts and the IRS consider to be “common law employees.” The IRS defines a common law employee as “any individual who, under common law, would have the status of an employee…a person who performs services for an employer who has the right to control and direct the results of the work and the way in which it is done.” For example, the employer provides the employee’s tools, materials, and workplace, and can fire the employee. Many high-profile worker misclassification lawsuits, whose staggering costs to employers made national headlines such as Vizcaino v. Microsoft (settled for $97 million in June, 2001), were based on courts’ findings that plaintiffs were common law employees. MYTH #4: REALITY: MYTH #5: REALITY: MYTH #6: REALITY: MYTH #7: REALITY: CONCLUSION – EDUCATION IS THE BEST DEFENSE |
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Ron Wainrib, Esq., is editor and publisher of Temp Law On Line, at www.contingentlaw.com, a unique, one-stop legal information resource center for staffing agencies and other parties involved in “contingent” workforce management. He publishes the Contingent Employment Law Manual, Temp Law Update newsletter, and “Contingent Workforce Forms Book”. Ron teaches staffing agencies how to avoid costly legal risks such as co-employment liability through his interactive seminars and articles. He can be reached by e-mail at Needtokno@comcast.net.The information in this article should not be construed as legal advice or a legal opinion. Also, please remember that state laws may differ from federal laws. |
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In the dynamic landscape of manufacturing, the year 2024 marks a significant leap forward, driven by advancements in Artificial Intelligence (AI) and automation.
The assembly line is a critical segment of the manufacturing process where the real action takes place.
Today’s business landscape requires an increasing emphasis on sophisticated designs and advanced systems. Businesses are always on