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Watch the Taxpayer's
Voice Speaks 30 minute
ABC broadcast television
program about this topic.
Voice Speaks 30 minute
ABC broadcast television
program about this topic.
In response to very challenging financial challenges, may employers have "changed"
the status of their workers from employees to independent contractors. Sometimes,
employer or an employee, you should be aware of the problems that could surface
later.
THE EMPLOYER’S COMMON POINT OF VIEW:
The written agreement which identifies an individual as an “independent contractor”
does not obligate the IRS, State Department of Treasury, Worker’s Compensation or
the Unemployment Agency to agree. They each have the right to review the actual
nature of the working relationship between the parties.
Note, the law is very heavy weighted in favor of determining that a worker is an
employee and not an independent contractor - and the state of the economy really
has nothing to do about it.
Moreover, employers can be sued by the workers.
THE WORKER’S COMMON POINT OF VIEW:
In the meanwhile, how does this affect the worker? Take the following as a example:
Worker Mary earns $30,000 a year gross income as an employee. Due to a
downturn in the business the employer decides to change the status of that
employee to an independent contractor, but the worker’s responsibilities essentially
remain the same. In doing so the “former” employer has constructed things to avoid
having to pay its employer’s share of the social security, medicare contribution,
federal unemployment tax, state unemployment tax, worker’s compensation
premiums it would have had to pay if Mary was recognized as an “employee.” It has
also attempted to rid itself from having to administer to the collection, payment and
employment tax return filing responsibilities which all employers have to satisfy.
From Mary’s point of view, it now appears she has to make up for what the employer
isn’t paying the IRS for it’s contribution to her social security and medicare benefits.
Assuming she files her tax return as a self employed independent contractor, she will
have to pay those amount herself. Thus, the money left over for her life, meaning
her disposable income, is reduced by the amount the employer would have had to
pay, or about $2,310.00.
Also, if she truly is an independent contractor and she doesn’t replace all the
benefits she received previously, she will not have any unemployment insurance to
help her if there isn’t any work and she will not be covered by worker’s compensation
if she’s injured on the job.
And none of the above considers loss of vacation time, sick time, health care or any
other benefits previously provided by her employer. So, why did Mary sign the
agreement? Commonly, it’s because she was afraid of not having any work -
meaning she would lose all her income - if she didn’t. However, Mary has recourse
because the only thing that really changed was the way her employer.
Moreover, so do all the other people who were changed from being an employee to
an “independent contractor.”
NEWLY HIRED/CONTRACTED PEOPLE.
The above also applies to people who are newly engaged.
The IRS has identified 20 factors to be used as guidelines in determining whether
sufficient control is present to establish an employer-employee relationship or the
person providing the services is an independent contractor. It is important to note
that the factors are to be considered only as guidelines and that not all factors will be
applicable in every case. All relevant factors are considered in making a
determination, and no one factor is decisive. Again, the label put on the relationship
does not matter -- the IRS will apply all relevant factors depending on the facts of the
relationship. IRS Publication 15A, Employer's Supplemental Tax Guide. The IRS has
stated that special scrutiny is required in applying the 20 factors to assure that
formalistic aspects of an arrangement designed to achieve a particular status do not
obscure the substance of the arrangement.
OBSERVATION: "IRS Final Training Guide" instructs IRS field agents how to apply
the 20 factors when conducting a payroll tax audit.
The 20 factors indicating whether an individual is an employee or independent
contractor, set forth in IRS Publication 937, Employment Taxes, and also referred to
in the Revenue Rulings are as follows:
1) INSTRUCTIONS. An employee must comply with instructions about when,
where, and how to work. Even if no instructions are given, the control factor is
present if the employer has the right to control how the work results are achieved.
2) TRAINING. An employee may be trained to perform services in a particular
manner. Independent contractors ordinarily use their own methods and receive no
training from the purchasers of their services.
3) INTEGRATION. An employee's services are usually integrated into the
business operations because the services are important to the success or
continuation of the business. This shows that the employee is subject to direction
and control.
4) SERVICES RENDERED PERSONALLY. An employee renders services
personally. This shows that the employer is interested in the methods as well as the
results.
5) HIRING ASSISTANTS. An employee works for an employer who hires,
supervises, and pays workers. An independent contractor can hire, supervise, and
pay assistants under a contract that requires him to provide materials and labor and
to be responsible only for the results.
6) CONTINUING RELATIONSHIP. An employee generally has a continuing
relationship with an employer. A continuing relationship may exist even if work is
performed at recurring although irregular intervals. This also requires a review of
the history of the relationship. Thus a review will look to see whether the status of the
relationship has changed over time or whether there was consistent treatment the
individual and others holding substantially similar positions as other than employees.
7) SET HOURS OF WORK. An employee usually has set hours of work
established by an employer. An independent contractor generally can set her own
work hours.
8) FULL-TIME REQUIRED. An employee may be required to work or be available
full-time. This indicates control by the employer. An independent contractor can work
when and for whom he chooses.
9) WORK DONE ON PREMISES. An employee usually works on the premises of
an employer or works on a route or at a location designated by an employer.
OBSERVATION: Factors 7, 8, and 9 may have become of less importance in view of
computers and the internet that allow workers to perform just as well, and may be
even better, away from the workplace.
10) ORDER OR SEQUENCE SET. An employee may be required to perform
services in the order or sequence set by an employer. This shows that the employee
is subject to direction and control.
11) REPORTS. An employee may be required to submit reports to an employer.
This shows that the employer maintains a degree of control.
12) PAYMENTS. An employee is generally paid by the hour, week, or month. An
independent contractor is usually paid by the job or on a straight commission.
13) EXPENSES. An employee's business and travel expenses are generally paid
by an employer. This shows that the employee is subject to regulation and control.
14) TOOLS AND MATERIALS. An employee is normally furnished significant
tools, materials, and other equipment by an employer.
15) INVESTMENT. An independent contractor has a significant investment in the
facilities she uses in performing services for someone else.
16) PROFIT OR LOSS. An independent contractor can make a profit or suffer a
loss.
17) WORKS FOR MORE THAN ONE PERSON OR FIRM. An independent
contractor is generally free to provide his services to two or more unrelated persons
or firms at the same time.
18) OFFERS SERVICES TO THE GENERAL PUBLIC. An independent contractor
makes his services available to the general public.
19) RIGHT TO FIRE. An employee can be fired by an employer. An independent
contractor cannot be fired so long as he produces a result that meets the
specifications of the contract.
20) RIGHT TO QUIT. An employee can quit her job at any time without incurring
liability. An independent contractor usually agrees to complete a specific job and is
responsible for its satisfactory completion or is legally obligated to make good for
failure to complete it. Note either an employer or employee, with or without the
other's knowledge or assent, may request the IRS to make a determination as to
whether or not a particular worker is an employee. However, the information that
must be submitted in connection with a Form SS-8 request can raise enough
questions to cause a payroll tax audit. The IRS will not issue a ruling on whether the
prospective employment status of an individual is that of an employee or an
independent contractor. However, the IRS may issue a ruling with regard to prior
employment status.
All of the above clearly demonstrates that you need an experienced ADVOCATE to
address these matters. That’s what we are. That’s what we do.
the status of their workers from employees to independent contractors. Sometimes,
employer or an employee, you should be aware of the problems that could surface
later.
THE EMPLOYER’S COMMON POINT OF VIEW:
The written agreement which identifies an individual as an “independent contractor”
does not obligate the IRS, State Department of Treasury, Worker’s Compensation or
the Unemployment Agency to agree. They each have the right to review the actual
nature of the working relationship between the parties.
Note, the law is very heavy weighted in favor of determining that a worker is an
employee and not an independent contractor - and the state of the economy really
has nothing to do about it.
Moreover, employers can be sued by the workers.
THE WORKER’S COMMON POINT OF VIEW:
In the meanwhile, how does this affect the worker? Take the following as a example:
Worker Mary earns $30,000 a year gross income as an employee. Due to a
downturn in the business the employer decides to change the status of that
employee to an independent contractor, but the worker’s responsibilities essentially
remain the same. In doing so the “former” employer has constructed things to avoid
having to pay its employer’s share of the social security, medicare contribution,
federal unemployment tax, state unemployment tax, worker’s compensation
premiums it would have had to pay if Mary was recognized as an “employee.” It has
also attempted to rid itself from having to administer to the collection, payment and
employment tax return filing responsibilities which all employers have to satisfy.
From Mary’s point of view, it now appears she has to make up for what the employer
isn’t paying the IRS for it’s contribution to her social security and medicare benefits.
Assuming she files her tax return as a self employed independent contractor, she will
have to pay those amount herself. Thus, the money left over for her life, meaning
her disposable income, is reduced by the amount the employer would have had to
pay, or about $2,310.00.
Also, if she truly is an independent contractor and she doesn’t replace all the
benefits she received previously, she will not have any unemployment insurance to
help her if there isn’t any work and she will not be covered by worker’s compensation
if she’s injured on the job.
And none of the above considers loss of vacation time, sick time, health care or any
other benefits previously provided by her employer. So, why did Mary sign the
agreement? Commonly, it’s because she was afraid of not having any work -
meaning she would lose all her income - if she didn’t. However, Mary has recourse
because the only thing that really changed was the way her employer.
Moreover, so do all the other people who were changed from being an employee to
an “independent contractor.”
NEWLY HIRED/CONTRACTED PEOPLE.
The above also applies to people who are newly engaged.
The IRS has identified 20 factors to be used as guidelines in determining whether
sufficient control is present to establish an employer-employee relationship or the
person providing the services is an independent contractor. It is important to note
that the factors are to be considered only as guidelines and that not all factors will be
applicable in every case. All relevant factors are considered in making a
determination, and no one factor is decisive. Again, the label put on the relationship
does not matter -- the IRS will apply all relevant factors depending on the facts of the
relationship. IRS Publication 15A, Employer's Supplemental Tax Guide. The IRS has
stated that special scrutiny is required in applying the 20 factors to assure that
formalistic aspects of an arrangement designed to achieve a particular status do not
obscure the substance of the arrangement.
OBSERVATION: "IRS Final Training Guide" instructs IRS field agents how to apply
the 20 factors when conducting a payroll tax audit.
The 20 factors indicating whether an individual is an employee or independent
contractor, set forth in IRS Publication 937, Employment Taxes, and also referred to
in the Revenue Rulings are as follows:
1) INSTRUCTIONS. An employee must comply with instructions about when,
where, and how to work. Even if no instructions are given, the control factor is
present if the employer has the right to control how the work results are achieved.
2) TRAINING. An employee may be trained to perform services in a particular
manner. Independent contractors ordinarily use their own methods and receive no
training from the purchasers of their services.
3) INTEGRATION. An employee's services are usually integrated into the
business operations because the services are important to the success or
continuation of the business. This shows that the employee is subject to direction
and control.
4) SERVICES RENDERED PERSONALLY. An employee renders services
personally. This shows that the employer is interested in the methods as well as the
results.
5) HIRING ASSISTANTS. An employee works for an employer who hires,
supervises, and pays workers. An independent contractor can hire, supervise, and
pay assistants under a contract that requires him to provide materials and labor and
to be responsible only for the results.
6) CONTINUING RELATIONSHIP. An employee generally has a continuing
relationship with an employer. A continuing relationship may exist even if work is
performed at recurring although irregular intervals. This also requires a review of
the history of the relationship. Thus a review will look to see whether the status of the
relationship has changed over time or whether there was consistent treatment the
individual and others holding substantially similar positions as other than employees.
7) SET HOURS OF WORK. An employee usually has set hours of work
established by an employer. An independent contractor generally can set her own
work hours.
8) FULL-TIME REQUIRED. An employee may be required to work or be available
full-time. This indicates control by the employer. An independent contractor can work
when and for whom he chooses.
9) WORK DONE ON PREMISES. An employee usually works on the premises of
an employer or works on a route or at a location designated by an employer.
OBSERVATION: Factors 7, 8, and 9 may have become of less importance in view of
computers and the internet that allow workers to perform just as well, and may be
even better, away from the workplace.
10) ORDER OR SEQUENCE SET. An employee may be required to perform
services in the order or sequence set by an employer. This shows that the employee
is subject to direction and control.
11) REPORTS. An employee may be required to submit reports to an employer.
This shows that the employer maintains a degree of control.
12) PAYMENTS. An employee is generally paid by the hour, week, or month. An
independent contractor is usually paid by the job or on a straight commission.
13) EXPENSES. An employee's business and travel expenses are generally paid
by an employer. This shows that the employee is subject to regulation and control.
14) TOOLS AND MATERIALS. An employee is normally furnished significant
tools, materials, and other equipment by an employer.
15) INVESTMENT. An independent contractor has a significant investment in the
facilities she uses in performing services for someone else.
16) PROFIT OR LOSS. An independent contractor can make a profit or suffer a
loss.
17) WORKS FOR MORE THAN ONE PERSON OR FIRM. An independent
contractor is generally free to provide his services to two or more unrelated persons
or firms at the same time.
18) OFFERS SERVICES TO THE GENERAL PUBLIC. An independent contractor
makes his services available to the general public.
19) RIGHT TO FIRE. An employee can be fired by an employer. An independent
contractor cannot be fired so long as he produces a result that meets the
specifications of the contract.
20) RIGHT TO QUIT. An employee can quit her job at any time without incurring
liability. An independent contractor usually agrees to complete a specific job and is
responsible for its satisfactory completion or is legally obligated to make good for
failure to complete it. Note either an employer or employee, with or without the
other's knowledge or assent, may request the IRS to make a determination as to
whether or not a particular worker is an employee. However, the information that
must be submitted in connection with a Form SS-8 request can raise enough
questions to cause a payroll tax audit. The IRS will not issue a ruling on whether the
prospective employment status of an individual is that of an employee or an
independent contractor. However, the IRS may issue a ruling with regard to prior
employment status.
All of the above clearly demonstrates that you need an experienced ADVOCATE to
address these matters. That’s what we are. That’s what we do.
Copyright 2009; Richard Craig Krause.
All rights reserved. Copying and/or use of
the whole or any part of this material
without prior written consent is
prohibited. Taxpayer’s Voice is a federal
registered trademark. Copying and/or use
of the mark without prior written consent
is prohibited. Violators will be
prosecuted. "Tax Crisis," IRS "Black
Hole", IRS "Black Magic," "Taxpayer's
Voice Speaks," "Snowballing," "Cycle of
Destruction," the theme music, with and
without our Taxpayer's Voice lyrics, and
the Armored Man are also trademarks of
Richard Craig Krause. Copying and/or
use of same without prior written consent
is prohibited. Violators will be
prosecuted.
All rights reserved. Copying and/or use of
the whole or any part of this material
without prior written consent is
prohibited. Taxpayer’s Voice is a federal
registered trademark. Copying and/or use
of the mark without prior written consent
is prohibited. Violators will be
prosecuted. "Tax Crisis," IRS "Black
Hole", IRS "Black Magic," "Taxpayer's
Voice Speaks," "Snowballing," "Cycle of
Destruction," the theme music, with and
without our Taxpayer's Voice lyrics, and
the Armored Man are also trademarks of
Richard Craig Krause. Copying and/or
use of same without prior written consent
is prohibited. Violators will be
prosecuted.
Disclaimer.
Issues of the kind generally identified in
this website require expert legal help
which would be devoted to the specific
address any or all possible factual or
legal issues, and further that it does not
identify all the law, conditions or other
requirements that must be met or may
apply to any matter or challenge, in
whole or in part. We are not responsible
for how you may use the information
reflected in this website.
Issues of the kind generally identified in
this website require expert legal help
which would be devoted to the specific
address any or all possible factual or
legal issues, and further that it does not
identify all the law, conditions or other
requirements that must be met or may
apply to any matter or challenge, in
whole or in part. We are not responsible
for how you may use the information
reflected in this website.
| EMPLOYEE or INDEPENDENT CONTRACTOR 1-800-230-4747 |
Richard Craig Krause & Associates, P.C
| The Taxpayer's Voice |
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