Watch the video below or scroll down to read the recap
In this workshop, we cover all things concerning proper worker classification in conjunction with the U.S. Small Business Administration and the WV Small Business Development Center.
Presentation Slides:
Misidentification and the Economy
Adding economic costs & denies benefits
Big losses to Social Security and Medicare Funds
Undermines the economy
Growing issue
Gig economy is expanding 3x faster
Over 50% of the workforce likely to join the gig economy by 2027.
Today
Types of Workers
Internal Revenue Service (IRS) Test
Department of Labor (DOL) Test
Contractor Documentation
5 Types of Workers
Statutory Employees
Statutory Non-Employees
Independent Contractors
Employees
Government Workers
Statutory Employees & Statutory Nonemployees
Statutory Employee: Worker who by law is considered an employee.
Statutory Nonemployee: Worker who by law is NOT considered an employee
Statutory Employees
Always Employees:
Drivers - Beverages (not milk), Meat, Fruit, Vegetables, Bakery Products, Laundry/Dry
Life Insurance Agents - Work primarily for one company
Home Workers - Business supplies goods, then goods returned to business, Business specifies how work is done
Traveling Sales - Goods are merchandise for resale/supplies for operation
Salesperson's principal business activity
Always Contractors
Direct Sellers - Payments related to sales/output, Written contract will not be employee
Real Estate Agent - Payments related to sales/output, Written contract will not be employees
Companion Sitters - Not employed by service
Internal Revenue Service
Degree Control
Independence
IRS Degree of Control
Financial factors, Behavior factors, and Relationship factors all point to the Type of Worker
*Note: there is no magic number of factors. The key is to examine the entire relationship.
Behavioral Control
How much control over the activities of the worker has the business owner reserved the right to direct?
Types of Instructions Given
The Degree of Instruction
Worker subject to Evaluation System
Indicates employee
Business provides training
Indicates employee
*Note: The more detailed the instructions, the more control the business exercises over the worker.
Financial Control
Does the business have the right to control economic aspects of the worker’s activity?
Does the worker have…
Significant investment in equipment
Unreimbursed expenses like business filings
Opportunity for profit or loss
Makes services available to other businesses
Payment method usually not hourly
Flat Fee
*Note: If a worker has a significant investment in the tools/equipment and has unreimbursed expenses, the worker has a greater opportunity to lose money and thus more likely an independent contractor.
Type of Relationship
How does the worker and business perceive their relationship to each other?
Is there a--
Written contract?
Contract alone is not proof of IC status
Employee-type benefits provided?
NOT provided to real IC
Relationship mostly permanent?
Indefinite relationship indicates employee
Key business activity?
*Note: If a worker provides key services to business operation, it’s more likely that
the business has the right to direct/control the worker’s activities.
What About Officers?
Officers are normally employees when they work in the business
Officers are not employees if--
Perform no/minor services
Not entitled to compensation (direct or indirect)
*Note: Think you got it wrong? See the Voluntary Classification Settlement Program | Internal Revenue Service (irs.gov)
Fair Labor Standards Act (FLSA)
Newer regulations
Now Conforms to courts’ FLSA interpretation
Totality of circumstances analysis
*Note: Fact Sheet 13: Employment Relationship Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor (dol.gov)
Economic Reality of the Relationship Test
Integral to Business, Managerial Skill Affects profit/loss, Investments, Skill and Initiatives, Permency, and Employer Control affect Type of Worker
Guidelines
No one factor is weighted more than any other.
Certain factors are unimportant in determining whether there is an employment relationship. the place
where work is performed
the absence of a formal employment agreement
whether an alleged independent contractor is licensed by State/local government
Trouble Areas
Construction workers
Franchisees
Volunteers
Employees can’t volunteer services to employer
Trainees/Students
Depends on the activities
Home Workers
Entitled to all benefits of the law
Exemptions
Minimum Wage and Overtime - Professionals, Seasonal amusement/recreation, Small newspapers, Newspaper Delivery, Part-time Farmworkers, Casual Sitters/Companions
Overtime Only - Transportation, Domestic Service, Motion Picture Theaters, Farmworkers
Partial - Hospitals/Residential care, Remedial Training, Fire and Police
Documentation for Contractors
As a business owner with independent contractors, you need to get this right
Formal Contract
Signed by both parties
Include--
Detailed scope of work
Changes clause
Delivery schedule & deadlines
Amounts & timing of payments
Ownership of the work
How and when is contract terminated
Plus language that says—
Contractor is NOT employee
There will be no withholding, etc.
Contractor pays own expenses
Contractor not eligible for benefits (because not employee)
Contractor must provide proof of own liability insurance
Contractor must provide proof of business registrations and licensing
Consider ordering a boilerplate from attorney
W-9 Request for Taxpayer Identification and Certification
Get the W-9 form from the independent contractor before work starts
Certify taxpayer ID(EIN or Social Security Number)
Certify isn't subject towithholding
Certify exemption from some reporting and payments
Not sent to IRS.
Keep in files for auditor if necessary
Used to create Form 1099-NEC or Form 1099-K 21
*Note: To check Tax ID numbers of payees, you can sign up to use the IRSe-Services site
Insurance
Keep Copies-
General Commercial Liability
Commercial Auto Insurance
Workers’ Compensation (if the independent contractor has employees)
Umbrella
You should consider
Subcontractor Default Insurance (SDI)
Business Registrations
Keep copies-
State, county or city business license
Special Licensing by Activity
Contractors’ license (construction)
Federal Business licenses
E.g., Alcohol, Tobacco, & Firearms
Professional licensing
Note: Records Retention
There are 2 Concerns:
Statue of Limitation - Breach of Contract
10 Years
After breach or when plaintiff discovers the breach, whichever is later
Tax Filings - IRS
Fraudulent tax filing forever
Use electronic stroage system
Resource Links
About Publication 15-A, Employer's Supplemental Tax Guide, (Supplement to Pub. 15, Employer's Tax Guide) | Internal Revenue Service (irs.gov)
Form SS-8 (Rev. December 2023) (irs.gov) and instructions Instructions for Form SS-8 (01/2024) | Internal Revenue Service (irs.gov)
2023 Form 8919 (irs.gov) Uncollected Social Security and Medicare Tax 28
Fact Sheet 13: Employment Relationship Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor (dol.gov)
Misclassification of Employees as Independent Contractors Under the Fair Labor Standards Act | U.S. Department of Labor (dol.gov)
About Form W-9, Request for Taxpayer Identification Number and Certification | Internal Revenue Service (irs.gov)
Contact
Twitter: @SBA_WV
To reach Kimberly: Kimberly.Donahue@sba.gov
To reach Harold: harold.d.patterson@wv.gov
To hear the Q&A portion of the workshop, watch the recap video at the top of the blog and click on time marker 34:43.
Let's Get in Touch!
Jim Spencer, Executive Director Bluefield WV Economic Development Authority | jspencer@bluewv.org | (304) 902-2332 x 2405
Dee Puckett, Operations Manager
Bluefield WV Economic Development Authority | dpuckett@bluewv.org | (304) 902-2332 x 2408
Faith Blackwell, Administrative + Marketing Assistant
Bluefield WV Economic Development Authority | fblackwell@bluewv.org
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