The Questionable Employment Tax Practices (QETP) initiative continues to be in effect. This enables the IRS and States to share Employment Tax Examination Results, including other information when you are paying 100 recipients. Over 30 states have entered into agreements to share the results of employment tax examinations.
Memorandum of Understanding (MOU) participants include states like Arizona, Arkansas. California, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, Washington, and Wisconsin.
Employment Tax Report submissions to the IRS or Civil Cases will be shared with participating states, as will the results from employment tax inquires and rulings.
The IRS and the States will endeavor to be consistent with their audit results, thus reducing the chances that the IRS rules one way and the state rules another.
This coordinated effort has resulted in millions of dollars being collected by the various regulatory agencies for misclassifying workers as independent contractors.
Thus, the greater number of workers classified as independent contractors with your company, the greater the chance your company will be hit with some sort of inquiry or claim alleging employment status. This could subject your company to an audit and assessment that will reach back 3 years for the IRS, the U.S. Department of Labor, and most states. The results of their rulings could be financially devastating for your company.
WHAT COULD MY COMPANY BE ASSESSED FOR BECAUSE WE USE INDEPENDENT CONTRACTORS?
Your company could be assessed for the following: federal and state withholding taxes, including Social Security Taxes and Federal Unemployment Insurance Taxes; Wage and Record Keeping violations, including interest, compensatory, and punitive damages; state unemployment insurance taxes, including interest and penalties; and possible fraud assessments, as well as violations attributed to not providing health care coverage.
IS THE USE OF INDEPENDENT CONTRACTORS OUTLAWED?
NO. An employer has the right to treat a worker as an independent contractor, as long as the business relationship is compliant with the various laws in the states where they do business as well as with the laws that govern IRS and U.S. DOL compliance. In fact, nearly every industry uses independent contractors which largely contribute to our economy.
WHAT ARE THE VARIOUS LAWS FOR COMPLIANCE?
Independent contractor laws vary from state to state. Some states use common law in conjunction with court case law. Other states have their own statutes on the books that list factors that support either independent contractor or employment status. Still other states use what is referred to an ABC-three prong test or an AB-two prong test. The U.S. DOL, which conducts wage hour audits, uses a more stringent test referred to as the Economic Reality Test. To varying degrees, these tests are subjective in nature. Generally, the Courts have previously ruled that NO ONE FACTOR is determinative and that a combination of factors must be considered. So, the greater the number of factors favoring independent contractor status, the greater the chance your company has of garnering a favorable outcome in the event that a claim is filed or an audit is conducted by any regulatory agency.
STEPS TO COMPLIANCE
CONSULTECH has specialized in Independent Contractor (IC) Compliance for over 30 years. Our experts conduct diagnostic tests to determine if clients are properly documented and can provide the necessary training to managers and supervisors, including how to treat an independent contractor differently from classified employees. These are pro-active steps to avoiding claims and inquires that lead to audits and assessments.
Handling of Complaints, Claim Inquiries, and Audits
Claims and audits are sometimes unavoidable, but once a client of CONSULTECH has taken steps to compliance, CONSULTECH will represent the client under a power of attorney before the regulatory agency (i.e., the IRS, the U.S. DOL, or State Labor Department). Even if CONSULTECH was not involved in ensuring compliance, we will still offer the service for representation before these various agencies.
GET IN COMPLIANCE TODAY AND AVOID THE EXPENSE OF COSTLY LEGAL FEES.
CALL CONSULTECH TODAY IF YOU HAVE A REGULATORY AGENCY THAT MAY BE CHALLENGING YOUR USE OF INDEPENDENT CONTRACTORS, EITHER FROM A CLAIM INQUIRY OR PROSPECTIVE AUDIT.
800-769 2994 x110
INSURANCE WITH CONSULTECH’S SISTER COMPANY, CHOICE ADVISORY GROUP LLC
CHOICE ADVISORY GROUP LLC offers a one-stop shop for all your client’s insurance needs.
CHOICE ADVISORY GROUP LLC can assist companies in meeting their independent contractor settlement processing needs as well as their insurance needs. For example, CHOICE has a program that provides Workers Compensation Coverage for all employees and Occupational Accident Insurance for all independent contractors engaged by the company, with an accompanying Contingent Liability Policy that will pay for defense in the event that an independent contractor alleges employment status. This insurance program is with the same A + rated carrier.
Contact CHOICE today at 631-351-6945. Ask for Tim.