Employers: Here’s one penalty you’ll want to avoid this tax season

Tax season is looming on the horizon. In addition to fearing audits, there’s another reason for employers to be freaked out this year: the Internal Revenue Service and National Labor Relations Board are cracking down on employers that may have misclassified employees as independent contractors in order to avoid paying taxes. There are several tests out there, in case you aren’t sure if you’ve incorrectly classified an employee as a contractor. The IRS maintains its Right to Control Test, while the Economic Realities Test is commonly used to uphold the Fair Labor Standards Act. The NLRB is also adding its own test into the mix, in case the process of classification wasn’t confusing enough. Typically, company employees receive company-sponsored job training, are expected to work certain times and days at a specified location, and are often given the opportunity to participate in benefit programs. Meanwhile, an independent contractor is a person that may work for a company, but may not be expected to work at the same time or location as company employees, likely does not have the same steady benefits as a company employee, and who pays their own taxes (both their own half and the employers’ share of both Medicare and Social Security). It’s this latter characteristic that is putting some employers in hot water. If your business is misclassifying employees in order to pay fewer taxes each year and the IRS catches wind of it, you may be required to pay not only back taxes and benefits for those employees, but you may also find your business or your leadership team facing stiff penalties (perhaps even fraud charges). If you suspect that you may have misclassified individuals in your employ, you can fill out an SS-8 form on the IRS’ web site, or request that the employee or individual contractor fill it out.]]>