As many companies grow and their workforce needs change, there may come a time when they have to decide if portions of their workforce are employees or independent contractors. Making the wrong decision on this subject can cost you. Under the current administration, the US Department of Labor and IRS have partnered up for the Misclassification Initiative, a task force designed to reduce the incidence of misclassified employees in the US workforce. Misclassification is seen as a key issue for two primary reasons; the first is the lost revenue from unpaid Federal and State taxes, and the second is for the protection of our workforce. Workers that are incorrectly classified as independent contractors are denied critical benefits and protections such as FMLA, overtime pay, unemployment insurance, and minimum wage standards. Companies that are found to have misclassified employees may face steep penalties. The greatest of these is the state and federal tax obligation that may result. All employers are required to pay Social Security tax, Medicare tax, federal unemployment tax, and state unemployment tax for each of their employees. Furthermore, companies may also be found liable to pay for the recovery of unpaid overtime and denied benefits resulting from misclassification. To help you make the right decision the IRS has set some common law rules to help you determine if your worker is an independent contractor or an employee. You may find these guidelines at http://www.irs.gov/taxtopics/tc762.html. And, of course, Veridian can also help you make the correct determination. We are always happy to help our clients by providing expert advice and guidance on such matters.
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