Is Your Workforce Properly Classified (IC or Employee?)

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Do you currently employ a handful of independent contractors? Hiring independent contractors is a great way for business owners to decrease costs and tax liability. You utilize help when and where you need it, and don’t have the burden or a fulltime or part-time salary when business slows down.

But, it is critical that business owners take the time to correctly determine whether the individuals providing services for their companies are really independent contractors, or whether they should be classified as employees.

If they are supposed to be employees and a tax audit reveals that they are misclassified, you will likely be held responsible for paying income taxes, Social Security and Medicare taxes, and unemployment taxes on all wages paid to that employee.

How do I determine whether the worker is an employee or IC? Evaluate your relationship.

If you answer “YES” to the majority of these questions, the individual should likely be documented as an employee, not an IC.

  • Does your Company control the worker’s hours?
  • Does your Company control where the worker performs his/her tasks?
  • Do you pay for the worker’s supplies, equipment, tools, and resources necessary to accomplish his/her job function?
  • Do you offer the worker benefits?
  • Do you offer the worker vacation time?
  • Is the relationship ongoing versus temporary or seasonal?
  • Is the work performed by the worker a core service or product offering within your Company?

BE CAREFUL! As we mentioned above, the consequences of treating an employee as an IC can result in being held liable for all employment taxes for that worker (as well as any other misclassified workers). The IRS provides many valuable resources, forms, and answers to common questions. To access their information surrounding ICs and Employees, click here.

For additional information on human resource management, including wage and hour compliance, tax classification and more, contact Employer Solutions Plus.

 

5 Common Payroll Mistakes

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Many business owners see payroll as one nasty task … why? Because one tiny mistake can quickly become a costly error if you are not in compliance or you’ve missed a state or federal filing deadline.

Here are 5 common payroll mistakes that business owners face:

  1. Deadlines. Do you know all of the deadlines for federal, state, county and municipal tax deposits? They don’t all often fall on the same exact date each year. One of the most common payroll tax mistakes is missing deadlines!
  2. W-2 Errors.W-2’s are long, intimidating forms. Do you know what goes in each box? Do you know which boxes need to be completed and which ones you’re free to “skip?”
  3. Having Only One Payroll Professional. You may believe that having one dedicated fulltime payroll professional in the office is the much more attractive solution versus outsourcing. But, do you have a backup employee on-site that is adequately trained in the event that something happens to your current payroll manager? What if she or he falls ill, needs to take a vacation or unexpectedly leaves your Company? Payroll service providers keep payroll services in motion, even when your employees are off-site or away.
  4. Filing. Where does your office keep time sheets, cancelled checks, W-2s, specific employee records and more? If an IRS auditor asked you to pull up payroll data from 5 years ago, would you be able to retrieve it?
  5. Misclassification. Your company may be in the growth phase, and it’s often within this phase that we see a growing number of independent contractors. But are they really all IC’s? If they are misclassified and meant to be filed as employees, businesses can be held liable for employment taxes following an IRS audit. (For more information on misclassification, join us next week. We will be diving deeper into misclassification in our next blog)

Leaving payroll to the professionals will eliminate all of the above-mentioned payroll mistakes, and will deliver peace of mind surrounding payroll tax compliance. And, it’s not too late to consider payroll outsourcing for 2013. In fact, many payroll service providers provide a flexible integration process, regardless of what time of year it is.

Whether your company decides to engage in a payroll-only solution or a full-suite administrative outsourcing solution such as a Professional Employer Organization, your company is sure to save time, money, and headaches.

Employer Solutions Plus provides its clients with a variety of payroll administration solutions. To learn more, simply contact us.

How Do PEOs Improve Cash Flow?

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Professional Employer Organizations save clients time and money by eliminating the inefficiencies of dealing with multiple vendors. And, for clients that have never worked with a Professional Employer Organization, the new co-employment relationship will likely improve your cash flow as well.

The most common way that PEO clients improve their cash flow is through the PEO’s workers compensation master policy. Even if you are a small company of 10 employees, the co-employment relationship will permit you to reap “big company benefits.” This eliminates debilitating workers compensation items from your cash flow such as down payments, audits, and set monthly payments. Many PEO clients instead enjoy “pay as you go” workers compensation based on gross wages and/or class codes for each pay period.

Second, with the help of a PEO your staff can spend more time on revenue-generating activities. Does your management team lose time (and money) each month tending to payroll, health insurance, administration and employee management activities? Working with a PEO will remove these unproductive activities, permitting you to “make money” all month long through consistently maximizing your internal efficiencies.

And, last but not least, PEOs provide predictability in operating costs. Through a co-employment contract, you rarely experience “vendor surprises” or unexpected expenses each month surrounding operations or employee management. The costs are clear, and they’re consistent.

Employer Solutions Plus can help companies with as few as 5 employees quickly and easily find the right PEO provider for improving cash flow, saving time, and saving money.

To improve your company’s overall cash flow position, contact us.

Cover Your Bases: HR’s Lay-Off Checklist

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Over the past several years many of us have been directly affected by downsizing. As an employer, laying-off a dedicated employee is one of the most difficult HR tasks. We often feel as if we don’t have a choice, which makes it all the more difficult.

The only thing worse than laying-off an employee you care about, is finding out that you weren’t in compliance when doing so.

This HR Checklist is brought to you by Employer Solutions Plus.

DO:

Review protected classes. Before determining which employees need to be let go, look at your group as a whole. Laying-off an employee that is part of a protected class can unfortunately be grounds for a lawsuit. Protected classes are typically defined based on age, sex, or race. If you are laying-off multiple employees, do they all have common characteristics (for example, they are all women). If so, be careful; number 2 on this list is going to be really important.

Have a justifiable business reason for laying-off. Your reason needs to be based on a legitimate business reason that stands up in a court of law. It needs to be based on downsizing, eliminating certain functions within your Company, relocating or closing certain office locations… NOT reasons having to do with characteristics, or that can accidentally appear as having to do with characteristics.

Have a witness. It is always recommended that you involve a third person in the room. This provides you with someone who can testify on your behalf in the event that the employee or employees feel you have violated their rights. Your witness should be another HR professional so that they can intervene and correct you in the event that something is accidently misstated.

Work with an attorney, or your PEO. Are you up to speed on all of the countless employment laws? An attorney or Professional Employer Organization will be up to speed. They can help you navigate the complex issues surrounding lay-offs, hiring, and firing.

Be honest, compassionate and QUICK! Losing your job stinks. Although you may simply be seen as a co-worker or manager to the individual, don’t forget to be human, and don’t lengthen an already difficult process. Be sure to provide recommendations to future employers to help the person re-enter the workforce as quickly as possible following termination.

DO NOT:

Give false hope. As we mentioned above, be honest, compassionate and quick!

Play favorites with severance. Pay out severance according to a worker’s title and length of service at your Company. Make sure your severance packages are fair and distribution standards are consistent across the board.

Blame the employee. If the Company is going through some hard times, again, be honest. NEVER lay-off anyone based on their performance, and reinsure them of the real reason for lay-offs, letting them know it has nothing to do with their performance.

For more information on lay-offs, or the advantages of hiring and firing with the help of a Professional Employer Organization, contact Employer Solutions Plus.