About This Course:
What Is The Difference Between And Independent Contractor And An Employee?
The difference between an independent contractor and an employee lies mainly in the degree of control, tax treatment, and legal obligations an employer has over the worker.
Why Is Misclassification A Big Deal?Misclassifying workers is one of the costliest mistakes in all of personnel management, as it can bring fines and penalties and force employers to pay back taxes and wages via lawsuits for unpaid benefits or protections.
Even as the cost of employing workers rises, facing an audit of workers you put on 1099 can mean an expensive payroll tax assessment. Although the IRS has remained relatively consistent in their evaluation of working relationships, many states are forcing more and more workers to be put on payroll.
What makes an independent contractor? Most of the answer is in that title itself. In order to establish that a worker is not an employee, you must show independence in the working relationship. That is, what factors (pay, tools and equipment, work hours, manner and means of performing services, etc,) does the worker have some or all control over? Then you need to consider the contract under which the worker and the business are bound by.
Is there a risk of loss to the worker? Which party is responsible for which expenses? Does the worker have obvious signs of being in business for him or herself?
How To Determine The Correct ClassificationThe IRS uses the "Common Law Test", which considers "Behavioral Control" (Does the company control how the worker does their job?), "Financial Control" (Who controls how the worker is paid, and who provides tools?), and the type of relationship (Is the relationship ongoing? Are benefits provided?). Essentially, if the employer controls the work and provides the tools and schedule, they individual is likely an employee.
Bottom line, the more an independent contractor agreement looks like an employment agreement, the more likely you are misclassifying those workers.
What You'll Learn:This important session is ideal for all hiring managers, as well as payroll and a/p personnel. With a few well-trained individuals in your company, you will gain peace of mind in your worker classification decisions.
Take it from the ex-auditor who leads this training session - it is well worth the time and effort to properly conduct business with independent contracts as it is for your employees.
Here is some of what you will learn:
- Misclassification Facts - IRS estimates of lost revenue
- Who Cares? - Variety of agencies that audit for this and why
- FIT definition of employee
- FICA/FUTA definition of employee
- IRS 3 Part Test - the minimum standard for federal and state purposes
- IRS pub 1779VII. State Determinations - how they are being narrowed year by year
- Exposure. - How to determine your vulnerability to audit
- Procedures for ensuring proper classification - how to tighten up your company procedures
- Ancillary Issues
- Electronic Filing and TIN matching
- Backup Withholding
Top FAQs
While many payroll-related regulations are federally-governed, there also are many state requirements, including those for handling garnishment, final paychecks, and unclaimed paychecks. Each state's requirements differ in the details, so be sure to check your state's requirements by clicking the applicable link(s) at the bottom of this page.
It often depends upon which factors - such as pay, tools, equipment, work hours, manner and means of performing services, etc,) the worker has control over.
Payroll Administrators must be able to:
- Properly "classify" workers
- Apply the various exemptions
- Calculate gross pay and properly make deductions
- Correctly identify, pay, and withhold taxes for employees
- Administer deferred compensation, cafeteria plan, sick pay, and other compensation
- Handle stock options, expense reimbursements, relocation, and other "expenses"
- Follow the proper policies, procedures, and documentation requirements for garnishments and levies
- Properly complete and file all required reporting requirements
- Correctly complete year-end requirements and establish year-beginning requirements
- Implement and maintain fraud, audit, disaster recovery, and record retention processes and procedures
A payroll audit is a review of an organization's payroll procedures. It can be done internally for assurance or by an external entity such as the government in reponse to a complaint, lack or inconsistent reporting, etc.
In business since the mid-1990's, we have over 25 years of experience delivering high-quality training content via seminar, webinar, online, and other formats. Each of our courses are delivered by an industry expert who will share his or her years of experience to help you be in compliance, smarter, and more productive, and almost all offer SHRM and HRCI credits.
Employees work directly for the company, which controls their work, pays their taxes, and often provides benefits, whereas the Independent Contractor is hired to do a specific job without the employee perks.
Definitely! An audit can be done either by an internal person or outsourced to an expert, with the expectation of fixing or updating any issues to avoid fines, penalties, etc.
In addition to ensuring that employees are paid correctly and on time, "Payroll" has numerous time and reporting requirements. The primary payroll areas include paychecks, reporting, operations, and management.
The company withholds income tax, Social Security, and Medicare from wages paid for employees, but none for Independent Consultants.
Payroll is much more than just handing out paychecks, and includes a variety of responsibilities such as handling garnishments, travel pay, multi-state taxation, unclaimed paychecks, and much more in a timely and accurate fashion.
A payroll audit typically occurs because either for many reasons: an employee makes a claim of unfair pay practices
Continuing Education Credits:
Click the 'Credits' tab above for information on PHR/SPHR, PDCs, and other CE credits offered by taking this course.
