Head of the Class(ification)
Posted on 08-Mar-10 by The Timekeeper
If your business employs independent contractors, you might want to listen up.
Now, of course we know none of the highly intelligent readers here would engage in shady labor practices — such as intentionally classifying employees as “contractors” in order to weasel out of paying the employer’s share of payroll taxes on their earnings — it’s easy for even well-meaning employers to get tripped up by the employee/contractor classification issue.
Thing is, just because you want somebody to be considered independent, that doesn’t necessarily make them independent according to the law. They have to meet certain criteria… and unfortunately, there are some gray areas that make the whole thing kinda tricky to sort out sometimes — not the least of which is that every state seems to have its own ideas, which may or may not agree totally with the Feds. On top of that, it’s rare that any job meets all the criteria, and there’s no hard-and-fast quantifiable way to decide… so it often turns into a subjective judgment.
It’s enough to make your head spin.
But I know a lot of you out there are considering hiring contractors or temps or whatever-you-want-to-call-them, because you need to staff up to meet what looks like increased demand, but you aren’t ready to lock yourself in to hiring more full time staff (only to possibly have to lay them off, with all the hassle and paperwork that entails, should the recovery take longer than expected to get traction).
Adding some urgency to the question is this note from the Obama administration’s budget proposal. In speaking of the 2011 budget for the U.S. Department of Labor, the proposal:
…includes an additional $25 million to target misclassification with 100 additional enforcement personnel and competitive grants to boost States’ incentives and capacity to address this problem.
OK, so this is something you really need to get right.
Fortunately, the IRS offers some assistance. Here’s an article intended to help business owners make the determination whether someone is an employee or a contractor. And if you really get stuck, you can always file a Form SS-8 with the IRS. They’ll make the determination for you and let you know. Keep in mind, though, it can take them up to six months to sort it all out — even the IRS has to puzzle over this stuff from time to time!
Keep in mind also the IRS rules may differ from the rules in your state, so you’ll also want to contact your state Department of Labor to make sure you’re in compliance with their regulations as well.
Ya know, the more I read up on this issue, I’m coming to the conclusion this is probably one of those (many) areas where, if there’s any question at all, you’re better off consulting with your employment law attorney and letting them sort out the complexities. It’s really, really tricky… and there are penalties for getting it wrong.
Now, don’t let this put you off from hiring temps or contractors. Just be careful out there, mmm-kay?
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