Tag Archives: Worker Classification

Tax Compliance Series for Construction Contractors: Worker Classification

compliance-series-cisg-icon-01Due to the nature of construction work, it is common for companies to face challenges related to understanding whether a worker is considered an “independent contractor” or “employee” in the eyes of the IRS. In the final post of Aronson’s Tax Compliance Series for Construction Contractors, we focus on an important issue for employers: worker classification.

Hiring a worker as an employee has costs beyond their wages. Such costs include:

  • Hard costs (e.g. payroll taxes, unemployment taxes, insurance)
  • Compliance with the regulatory requirements of having an employee
  • The added administrative burdens of payroll and the support of a human resources department

In a perceived cost-savings measure, some business owners continue to be tempted to hire workers and treat them as independent contractors. Nonetheless, the decision to classify someone as an independent contractor as opposed to an employee demands careful consideration for both federal and state purposes in order to avoid unnecessary and costly consequences. This has been a contentious issue for contractors of all sizes, but particularly for small contractors.

The degree of control the owner has over a worker is one element evaluated by the IRS to determine proper worker classification.

  • If the worker is subject to strict supervision by the business owner with regard to time, place, and how, the worker is more likely an employee for whom wage withholding, unemployment taxes, insurance, etc., are required.
  • If the worker is only responsible for a completed service or product without strict supervision as to when, where and how the work is performed, the worker is more likely to be considered an independent contractor.

This is just one of many factors that are evaluated when determining proper worker classification. In addition, workers themselves are often aware of the classification issue. It only takes one former “independent contractor” to file for unemployment or classification determination to wreak havoc on your construction business. If you have any doubt about worker classification, now is the time to determine if you have properly classified your workers.

For more information on these common tax reporting issues, or to discuss how they may impact your construction business, please reach out to Chavon Wilcox, CPA, CCIFP, partner in Aronson LLC’s Construction and Real Estate Group at 301.231.6288.

 

Related Reading:

Worker Classification: Voluntary Classification Settlement Program vs. Section 530 Relief

VCSP Sec 530The world of worker classification is still fraught with great uncertainty.  The distinguishing factors between an employee and an independent contractor are different between the federal and state agencies.  Thus, it is possible for a worker to be considered an independent contractor by one agency, but be deemed an employee by another.  Because companies that choose to reclassify their workers to employee status can face large taxes due, many adopt the strategy of closing one’s eyes and hoping for the best.

In an attempt to address the issue and to encourage companies to take a hard look at the classification of their workers, the Internal Revenue Service introduced its Voluntary Classification Settlement Program (VCSP) in 2011, and modestly liberalized it in 2012.  The benefit of this program is that the tax cost is very low – 1% of the reclassified worker’s compensation, with no interest or penalties.  However, this program is not binding to any states, nor does it provide any clarity to existing laws.

To enter this program,

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Deadline for Voluntary Worker Classification Program – Critical for Construction Contractors!

Construction contractors wanting to make use of the IRS’ Voluntary Classification Settlement Program (VCSP) have until 6/30/13 to file the required Form 8952 (Application for Voluntary Classification Settlement Program). The VCSP allows taxpayers to voluntarily reclassify workers as employees (instead of independent contractors) for employment tax purposes going forward from the time of the settlement. The program fee is a reduced percentage of the employment tax liability that would have been due and is submitted with the Form 8952. To be eligible, employers must have consistently treated workers as nonemployees (i.e., filing required Form 1099 for at least three years prior to the reclassification. A taxpayer already under an IRS employment tax audit or a DOL worker classification audit cannot use the settlement program. Information is available at www.irs.gov/Government-Entities/Federal,-State-&-Local-Governments/Voluntary-Classification-Settlement-Program-1

Health Care Reform Issues for Construction Contractors with Aronson LLC

The passage of the Patient Protection and Affordable Care Act, commonly known as Obamacare or Health Care Reform, has created many questions for employers throughout the construction industry.

Join Aronson LLC and Independent Benefit Services on May 8, 2013 for an informative presentation on the various provisions of healthcare reform that will have a profound impact on how healthcare is delivered and funded in the United States. Our experts will cover the major changes for 2013 and 2014, including new W2 reporting requirements, the Summary of Benefits and Coverage, The Employer Mandate, The Individual Mandate, and The Exchange.

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The Dirty Details of Worker Classification

Worker classification is one of those tricky compliance issues that everybody knows about, but nobody wants to talk about. With more and more states passing legislation to penalize employers who misclassify workers, audits are a valid concern for all businesses. Don’t be intimidated by this important topic – instead, be informed! Join Larry Rubin of Aronson LLC, Sean Malone of Harris, Jones and Malone, LLC and ABC of Metro Washington for a webinar that addresses how your company can prepare for audits and reduce liability.

Did you know that…

… The IRS has begun randomly selecting 6,000 taxpayers for a comprehensive employment tax law compliance audit?

… Independent contractor misclassification is now more likely than ever before to result in heavy fines and penalties?

…Worker misclassification invites trouble with the IRS, Department of Labor, and state and local governments?

…All companies are vulnerable, but construction and government contracting businesses are being targeted in particular?

Attendees will gain an understanding of the issues, the costs to their business of noncompliance, and steps they can take toward compliance.

Date: Tuesday, June 12, 2012
Time: 10:30 am – 11:30 am
Price: $29 Members
$49 Non Members

To register, please visit: http://www.abcmetrowashington.com/event_registration.aspx?eventid=95406

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