Here’s a Simple Way to Self-Audit Your Company’s Independent Contractor Misclassification Risk

yawn

The most boring concert I ever went to was Genesis, in the Orange Bowl, Miami, 1987. The sound quality was terrible, and the band just didn’t seem that into it. My dad, who was there with me, was so bored he pulled out a newspaper. (Yes, that means he anticipated being this bored and brought a newspaper, but he was not a Genesis fan. He went for me, which is something a good dad just does.) [Also: Hi, Dad, I know you’re reading!]

Three years earlier, Phil Collins released Against All Odds (Take a Look at Me Now). The song did really well, but he did not play that song or any other solo songs at the 1987 concert. I know this because… wait for it…  the internet! Yes, the set list from that March 1, 1987 show is posted here.

Segue please? Ah yes, take a look at me now.

One of the simplest ways to check your exposure to independent contractor misclassification claims is to perform a self-audit. (Take a look at me now!)

Get a printout of all 1099s your company issued last year. Is the list mostly LLCs? Or individual names? Focus on the individuals’ names, especially the ones who were paid the most. What kind of services did these individuals perform? Did they do something similar to what your W-2 employees do? Did they work side-by-side with your W-2 employees?

Have they been providing services for years? Did they used to be W-2 employees of your company?

Do they have contracts with your company? Are those contracts any good? Are they specific enough, and do they memorialize the good facts (those that support independent contractor status)?

It’s labor-intensive to do a comprehensive self-evaluation of your risk of independent contractor misclassification claims, but for rough back-of-the-envelope estimating, this can be a pretty useful exercise.

I hope it helps.

That’s All.

2018_Web100Badge

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Need training on avoiding independent contractor misclassification claims? Hey, I do that!  

Enter your email address to follow this blog and receive notifications of new posts by email.

 

Lost Chicken, Very Friendly: 2020 IRS Tips on Independent Contractor Status Are Now Available

Years ago, I signed up for the Next Door app, thinking it might be helpful to hear about things going on in my neighborhood. Most of the posts I see are useless — Can anyone recommend a good restaurant? Is it gonna snow tonight? Does Solon have any good proctologists?

I was ready to unsubscribe but just hadn’t gotten around to it. But then, last week, I got the post that made it all worthwhile:

36204067-6829-41E5-8647-D9C3FF88FABC

I should have clicked “Thank,” because I really do want to thank D. from South Central Solon for that post. The best part, of course, is the armchair psychoanalysis of Lost Chicken’s personality: “Very friendly.” (Lost Chicken also scores high for empathy and teamwork.)

Also known for being “Very friendly” is the IRS. New for 2020 is the Employer’s Supplemental Tax Guide, also known by its catchier, more taxlike moniker, Publication 15-A. Please don’t take my copy. You can get your own here.

Publication 15-A includes a section on independent contractor misclassification. It reminds employers that the IRS uses a Right to Control Test, which evaluates factors related to behavioral control, financial control, and the type of relationship of the parties. The specific factors are listed.

To improve readership, the IRS offers several helpful hypotheticals to illustrate the Independent Contractor vs. Employee conundrum, using memorable characters such as Vera Elm, an electrician; and Helen Bach, an auto mechanic. (But I see Helen Bach as more of a resurrected doomsday cult leader. I’m going to assume that the person who wrote this hypothetical pulled one over on the supervisor who approved it. Well played, IRS writer. Well played.)

Publication 15-A provides other helpful tips for employers at tax time. Get yours now, while supplies last. I’m going to offer a few extra copies on the Next Door app.

2018_Web100Badge

© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Need training on avoiding independent contractor misclassification claims? Hey, I do that!  

Enter your email address to follow this blog and receive notifications of new posts by email.

 

Sperm Oil Legal Alert: Can You Sue under the Tax Code for Independent Contractor Misclassification?

Sue tax code independent contractor misclassification

When laws are well-written, they’re really specific so everybody knows what you can and cannot do. For example, Title 21, Section 173.275(c) makes it a federal crime to use more hydrogenated sperm oil in food than necessary to accomplish the intended lubricating effect of the sperm oil. (Thanks @CrimeADay!)

Some laws, on the other hand, leave room for interpretation. That’s when lawyers can get creative.

A drapery hanger in Maryland filed a lawsuit alleging that he was misclassified as an independent contractor and should have been paid overtime like an employee. He sued under the usual federal and state laws, but he added a bit of creativity.

The Internal Revenue Code includes a section allowing someone to sue if an evildoer “files a fraudulent information return with respect to payments purported to be made to any other person.” That’s 26 USC 7434, for those keeping score at home. And USC refers to the United States Code, not OJ Simpson’s alma mater.

The drapery hanger included this claim in his lawsuit, alleging that the sole proprietorship that allegedly owed him overtime pay also violated this law by filing 1099s instead of W-2s.

Points will be awarded here for creativity, but those points cannot be used in court. Federal courts don’t take points. (This was not addressed in law school.) All points awarded may be applied to future discounts at your local gas station. No purchase necessary. Void where prohibited.

The court said, nice try but no. This section of the Code refers to the filing of fraudulent amounts of pay, not filing the wrong form.

Had the decision gone the other way, a claim under this section of the Code could be tacked onto just about every independent contractor misclassification lawsuit. And we don’t need that hassle. There are already enough laws that cover misclassification. And sperm oil.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Enter your email address to follow this blog and receive notifications of new posts by email.

 

When Sharks Talk to Bears: Beware of Cross-Agency Communications When Defending Independent Contractor Misclassification Claims

Shark independent contractor misclassification information sharing agreements

According to National Geographic, A 20-year old Colorado man has been bitten by a shark, a bear, and a snake.

Either the animal kingdom hates this guy, or he simply tastes delicious.

Formal information sharing across species is probably unusual, but within government agencies, it’s a thing. Businesses need to be aware of cross-agency information sharing when defending audits and defending agency enforcement actions related to independent contractor misclassification.

Federal and state agencies are particularly focused on sharing information about independent contractor misclassification. The Wage and Hour Division of the DOL has signed information sharing agreements with 27 states. The IRS and the DOL have a Memorandum of Understanding. Tax agencies share information too.

This network of cooperation can spell trouble for businesses undergoing 1099 audits or other agency investigations related to potential independent contractor misclassification.

A small assessment by a state agency may not seem like it’s worth fighting, but beware. Information sharing agreements may cause the assessment to multiply. Adverse findings might also be discoverable in litigation if there’s a civil lawsuit.

In other words, you could be viewed as an easy target, having been found already to be in violation.

A finding of independent contractor misclassification by one state agency may feel like a minor snake bite (I don’t know if there is such a thing as a minor snake bite, but stay with me here).  The snake, however, may share information with the shark, who will tell the bear, and before you know it, you’re that guy in Colorado who’s been bitten by all three.

Ouch!

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Enter your email address to follow this blog and receive notifications of new posts by email.

Like a Drunken Possum, NEW GIG Act Fails Again.

NEW GIG act possum

Screenshot from DailyDot.com, 12/3/2017

I feel bad for this little guy. This possum apparently broke into a Florida liquor store, knocked over a bottle of bourbon, and got sauced. Wildlife rescue picked him up and checked him into rehab (no, not that kind). Full coverage here at DailyDot.com.

I applaud the critter’s effort, though.

He probably feels a little like Senator John Thune (R-SD), who has repeatedly introduced a bill called the NEW GIG Act — designed to simplify tax law for independent contractor misclassification scufflaws. Every time he gets close, though, someone knocks him over the head with a bottle. Or something like that.

The NEW GIG Act has been introduced in Congress several times. If passed, it would Continue reading

Will Changes to the Tax Code Reduce Claims of Independent Contractor Misclassification?

Unicorn independent contractor misclassification

Ha ha. Wishful thinking.

By now, we’ve all heard that the new tax code provides a 20% tax deduction for many small businesses, including potentially independent contractors. (More info here.) As a result, some workers might prefer to be called contractors instead of employees to take advantage of the new deduction. Contractor status may be particularly appealing to workers who don’t need health insurance or other employee benefits. But, as we covered here, it doesn’t matter what a worker wants. The facts of the relationship determine a worker’s classification, no matter what the parties want it to be.

Don’t expect this change in the tax law to mean that independent contractor misclassification claims are going away. They’re not. Continue reading

Should Businesses Reclassify Workers as Contractors for 2018? (Or, Why You Shouldn’t Paint Your Dog)

Independent contractortax plan - don’t paint your dog

The Republicans just threw a bone to independent contractors with their new tax law. What does that mean for businesses? Let’s examine.

Strategy question for businesses: Now that tax law provides more favorable tax treatment to independent contractors (see more here), should business reclassify workers as contractors for 2018?

If that’s your reason, then no.

Suppose a new law required ice cream shops to give free cones to dalmation owners. This would be a stupid law, but stay with me.

If I paint dots on a yellow lab, do I get free ice cream?

No, of course not. Even I call my yellow lab a dalmation, it’s still a lab.

Continue reading