Employee vs. Independent Contractor

The latest “lawsuit du jour” is state governments
challenging companies that misclassify employees as
independent contractors.

But how does a state even know to challenge an employer
about a misclassified independent contractor (IC)?  Well,
in the majority of cases, the states learn about the
situation from former ICs who seek to recover unemployment
compensation (UC) benefits or workers compensation
benefits.

That’s right, in tough economic times, former ICs who were
happy not to have taxes withheld from their pays are
claiming that they have been victimized by employers who
misclassified them.

HR CONTRARIAN POINTER: Do it right the first time – it’s
not worth the aggravation or distraction from your
business.

I have met many employers who tell me that a worker is an
IC as I complete my HR Audit on the company.  Then, as I
talk them through the IRS guidelines for ICs, the
employers sheepishly agree that there are some grey areas.

The states and the IRS don’t see grey areas.  They see
black and white.  As the federal government and states
struggle with increasing unemployment and declining tax
revenue, they will become more aggressive in making sure
that they receive the taxes that they are due.

Below is a link from a Texas state government agency known
as the Texas Workforce Commission.  It offers some easy to
follow guidelines for determining who is an employee and
who is an IC:
http://www.twc.state.tx.us/news/efte/appx_d_irs_ic_test.html

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