Spotting Legal Land Mines in Your Social Media Campaign
Your responsibility extends to third-party contributors such as customers and friends.
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Originally published: 03.01.12 by Mike Coyne
If your business uses independent contractors in place of employees, the Internal Revenue Service could be watching you. For years the IRS has battled with employers regarding the classification of workers as either independent contractors or employees. In order to increase compliance with tax law and to raise revenue, both the IRS and various states are renewing efforts to challenge businesses whose workers are classified as independent contractors.
IRS reclassification of workers as employees can be an expensive proposition, as the employer can be held liable for back payroll taxes, penalties, and interest.
There are many reasons that a business may choose to use independent contractors. Typically, the most common reasons are to avoid having to pay payroll taxes and provide benefits to workers. However, the law does not permit employers to elect between independent contractor and employee status. Whether a worker is an employee or an independent contractor depends upon a legal analysis.
Under the law, the IRS considers the degree of control that
In order to have a "reasonable basis" for treating someone as an independent contractor, the employer must base its decision on a judicial or administrative ruling, a prior tax audit that did not challenge the classification of the workers, industry custom, or some other reasonable basis.
Recently, the IRS announced the creation of the Voluntary Classification Settlement Program (VCSP). Under VCSP, the IRS allows an employer to voluntarily reclassify its workers as employees for future tax periods for employment tax purposes. In order to obtain relief, the employer is obligated to pay 10 percent of the amount of employment taxes for the compensation paid for the most recent tax year to the workers being reclassified under the VCSP. In addition, the employer will not be liable for any interest and penalties on the payment under the VCSP, and will not be audited for employment tax purposes for prior years with respect to the worker classification of the workers.
The response to this voluntary program has been lukewarm. Depending upon the number of workers subject to reclassification, the prior year employment tax amount can be rather significant. Additionally, employers are concerned that voluntarily agreeing to reclassification with the IRS exposes them to possible back taxes, penalties, and interest with respect to state employment-tax obligations.
Michael P. Coyne is a founding partner of the law firm Waldheger Coyne, located in Cleveland, OH. For more information of the firm, visit: www.healthlaw.com or call 440.835.0600.
Michael P. Coyne is a founding partner of the law firm Waldheger Coyne, located in Cleveland, OH. For more information of the firm, visit: www.healthlaw.com or call 440.835.0600.
Your responsibility extends to third-party contributors such as customers and friends.
View article.
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If you are operating your business in corporate form, it is important to follow formalities. You should sign contracts in your capacity as an officer, and contracts should always be between your corporation and the other party. You should never be named as a party to the contract.
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