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April 2017

The gig economy: How to pay contractors and navigate benefits

The gig economy: How to pay contractors and navigate benefits 4166 2083 Heidi McLean

The gig economy offers benefits to workers and companies alike. While those benefits do include flexibility for workers and lower costs to employers, they don’t cover things we’ve grown used to such as built-in 401K plans, health insurance options, and worker’s compensation. For many independent contractors, that’s a problem. And as the gig economy’s slice of the economic pie grows, so does the problem. Currently, there is no roadmap telling you how to pay contractors fairly while keeping costs down. The good news is that we at PayReel have been on this road long enough to learn how to pay contractors legally and ethically.

 

Start with worker classification

First things first: classify workers correctly from the outset. A worker’s classification (whether they’re an employee or an independent contractor) guides what freelance benefits they’re entitled to by law. The rise of the gig economy has brought with it the rise of confusion over who is an employee and who is a contractor. Wherever gray areas and money meet, you will find lawsuits. True to form, legal disputes over worker classification have plagued everyone from Uber to FedEx. Following the rules and classifying correctly from the beginning saves time and potential legal troubles.

 

Stay aware of potential legal changes

From workers to legislators, people are thinking about how to manage the evolving landscape. Some envision an entirely new system with changing guidelines that suit changing times. Such a system might include “portable benefits” that travel with workers from company to company.

According to this article from the Pew Charitable Trusts, one bill proposes to:

“require people or companies that find work for and transfer payments to independent contractors — Uber, say, or a middleman who works with farm laborers — to contribute to a pool of money managed by an independent nonprofit. The broker might do that by charging consumers extra or by taking the money out of workers’ pay.

Contributions would be made at least monthly and would have to amount to either $6 per hour worked or 25 percent of the sum charged to the consumer, whichever is smaller. The money could be spent on paid time off, health insurance or other qualified benefits.”

We can only guess how things will change, but we do expect them to change. It behooves company leaders to stay in tune with these kinds of conversations and legal considerations.

 

Consider more than the bottom line

Some companies aren’t waiting for a legal mandate to make changes. Instead, they are voluntarily providing freelance benefits beyond their legal requirements. Care.com, for example, adds a small fee to each transaction, which converts to “benefits bucks” that service providers may use for expenses such as transportation. This kind of perk goes beyond the money in a worker’s pocket. Workers who feel valued are more loyal and do better work.  

 

Protect yourself

If you can’t (or just don’t want to) keep up with the rules and developments surrounding the on-demand economy, PayReel can keep up for you. Check out this handy guide to see if you might benefit from hiring a payroll services company. Not only does our team manage worker classification, payroll, and payroll taxes; as the employer of record we even take on all risk associated with a variable workforce. Going above and beyond in the ethics department isn’t just a warm and fuzzy notion. It’s a sound business decision, too.

 

About PayReel

When it comes to payroll taxes and so much more, PayReel makes your life easier. Producing multimedia content and executing live events is chaotic. At PayReel, we make sure our clients are able to hire who they want, when they want and that everyone is paid properly. Leave all payroll services and details up to the PayReel team so you can focus on pulling off a flawless production. Contact us anytime at 303-526-4900 or by emailing us here.

Relax. We got it.

 

IRS mistakes cost big (even when they're not your fault)

IRS mistakes cost big (even when they’re not your fault)

IRS mistakes cost big (even when they’re not your fault) 4500 3000 Heidi McLean

 

A case involving embezzlement, tax liability, and good intentions added up to a nightmare for one man. Dr. Robert McClendon’s story proves there’s no amount of caution too intense when it comes to payroll tax liability.

 

The road to hell is paved with good intentions

In a sobering case reported in Forbes, a man who loaned $100,000 to a struggling business was fined $4.3 million for said company’s payroll tax liability. When you dig into the details, it’s not as unfair as it may seem at first blush, but that doesn’t make the situation any less painful for Dr. McClendon—the defendant and a legally-deemed responsible party. As the Forbes article states, “You can be ‘willful’ under the tax law even if you didn’t have a bad motive or evil intent.”

So what was the kiss of death for Dr. McClendon?

 

Responsible & willful: A match made in IRS hell

Dr. McClendon owned the business to which he loaned the money and the cash went toward the seemingly noble goal of paying employees to prevent shuttering the doors altogether. While it was an employee who’d embezzled the funds earmarked for payroll taxes, the case against Dr. McClendon was strong enough to prove him responsible and willful. He wasn’t responsible for the embezzlement but he was responsible for choosing to pay employees instead of the payroll taxes, which by that time, he knew about. The case against Dr. McClendon withstood the legal tests and left the doc to nurse his own wounds. Ouch.

 

How to protect yourself

Either learn the rules of payroll taxes and precisely follow them or hire a qualified company to do it for you. The Forbes article suggests that one benefit to hiring a payroll service is that “the employer doesn’t have discretion to use the money to pay vendors or for anything else.” It’s sort of like a much higher stakes version of a 401K: If you can’t access the money when the temptation for an out-of-reach car comes up, you’ll still have it when you need it for less sexy reasons. Additionally, hiring a payroll service takes the burden of having to understand all of the rules and make heavy decisions off the company leadership.  The payroll service takes on the liability and frees up the small business to focus on business.

 

The bottom line:

There are too many ways to get in trouble with the IRS to choose ignorance. With fines and possible jail time on the line, legitimate small businesses must take payroll taxes seriously. The government sure does.

 

About PayReel

When it comes to payroll taxes and so much more, PayReel makes your life easier. Producing multimedia content and executing live events is chaotic. At PayReel, we make sure our clients are able to hire who they want, when they want and that everyone is paid properly. Leave all payroll services and details up to the PayReel team so you can focus on pulling off a flawless production. Contact us anytime at 303-526-4900 or by emailing us here.

Relax. We got it.