INDEPENDENT CONTRACTOR RULES
BY: Harry P. Wills III BOWMAN & COMPANY
Independent Contractor Rules Debated In Senate
Employers that depend on independent contract workers should prepare for some potential good news and bad news. The good news is that if the IRS determines that an independent contractor should actually be classified as an employee, the employer won’ t have to pay any back taxes, benefits, or penalties. The bad news is that they will need to get these individuals on the payroll— and pronto!
For years, the number of independent contract workers has been growing. Between 2010 and 2014, a full one-third of workers added to the job force were classified as“ 1099 employees,” according to the national nonprofit Jobs for the Future— a number that is only poised to grow. One reason is that it gives employers more flexibility in shifting the size of their workforces according to their business’ seasonality or other factors. They also save big by not having to offer these workers healthcare insurance, vacation time, or retirement benefits.
The IRS guidelines determining employment status— whether an independent contractor label is allowed— are complicated, and it isn’ t difficult for employers to classify someone incorrectly. The Agency’ s long 20-point checklist has many gray areas, which can be interpreted such that workers are wrongly excluded from full-time employee status.
In an effort to get more workers classified correctly, the Senate has introduced legislation to simplify the 20-point checklist into a simpler three-point code. Here is a sampling of the 20-point guidelines, followed by the simple three-point proposal:
Implementation of this simplified legislation would be a win-win for everyone involved, allowing employers to embrace their dedicated contractors and, if necessary, make them full participants in their workforces without undue past expense. Contractors would reap the considerable benefits of being regular employees. Stay tuned as the situation in Washington unfolds. For more information, research the New Economy Works to Guarantee Independence and Growth Act of 2017, also referred to as the NEW GIG Act of 2017. +
Harry P. Wills III joined the Firm in 1986 and was admitted as a partner in 1997. He is licensed to practice as a Certified Public Accountant in New Jersey and Pennsylvania and is also a Chartered Global Management Accountant. Mr. Wills’ area of focus is in taxation and the audits of employee benefit plans. His clients include law firms, insurance agencies, construction and manufacturing corporations, wholesalers and distributors, hotels, and investment entities.
20-POINT GUIDELINES 1. Does the worker have an investment in the equipment and facilities used to do the work?
2. Does the worker offer services to the general public? 3. Do you train the worker to do the job in a particular way? 4. Do you set the worker’ s hours? 5. Do you provide the worker with equipment, tools, or materials? 6. Does the contractor work for more than one firm? 7. Is he or she paid set fees at regular intervals?
THREE-POINT GUIDELINES 1. Is the provider obligated to service only the potential employer to the exclusion of other clients?
2. Does the contractor have a separate work space outside the company and utilize his or her own tools?
3. Is there a written contract that would acknowledge the provider’ s independent status?
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