I meet with business owners on a regular basis, and the things I see them engaging in to avoid paying employment-related taxes and benefits never ceases to amaze me. I am 100% behind the small business owner for he is who generates my income and feeds my family, but minimizing risk is duty to a client company. While I understand and agree with the argument that entrepreneurship is being regulated out of the greatest capitalist society on the planet, it serves no purpose to stand on the sidelines and sulk. If you own a business and you are trying to avoid costly penalties and lawsuits, the only choice in this increasingly litigious environment is to put your nose to the grindstone and get your company into compliance.
The Indiana State Unemployment Office has undeniably been stretched fairly thin over the past several years, but the fact remains that these folks do a pretty good job of exposing one of the most costly and commonly made mistakes of the small business owner. If you currently have folks performing functions for your business that are classified as contractors, I suggest you take a hard look at who these people are, what their functions are within your company and how you treat the delivery of their services. If one of these contractors is fired by you and goes to the State Unemployment Office, some very pointed questions will be asked. If it is determined that an individual has been misclassified as a contractor, you will be responsible for back taxes and penalties, not only for that particular person, but for all your misclassified “contractors.”
Ask yourself if you dictate the following from your “contractors,” and if you answer yes to any one of these, reconsider how you are currently doing business.
- When and where to do the work
- What tools or equipment to use
- What workers to hire or to assist with the work
- Where to purchase supplies and services
- What work must be performed by a specified individual
- What order or sequence to follow
In general, you want to consider the following from IRS Publication 15-A when determining whether a contractor may be a statutory employee:
Under common-law rules, anyone who performs services for you isyour employee if you have the right to control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.
Agreat reference for you is IRS Publication 15-A . While Publications are not considered primary authority by the accounting world, this document details the specifics of how employment relationships are viewed by the IRS. My advice is live by these guidelines now to ensure future surprises are kept to a minimum. All it takes is one person running to the unemployment line to create financial havoc for you and your business.
