Within the IRS and Department of Labor, red flags start flying from any number of triggers.
Consider the example of a legal secretary who presented herself as an independent contractor to a prominent Colorado law firm. After her project with the firm ended she filed for unemployment benefits. An investigation into her claim revealed she had no clients other than the law firm, worked hours as dictated by the firm, performed all her work on the firm’s premises using the firm’s equipment, and was under the direction and control of the firm’s attorneys. The Colorado Department of Labor and Employment, therefore, considered her to be an employee – not an independent contractor – and deemed her eligible for unemployment benefits. Additionally, the law firm was held liable for back payroll taxes and penalties.
Well-intentioned employers can easily end up on IRS and DOL radar screens when a Worker’s Comp claim is filed by a contract worker. This happens with surprising frequency despite the logical assumption that an independent contractor should understand the implications of a business-to-business relationship. One key aspect of a true B2B relationship is that a worker’s business activity exists independent of the employer.
As an employer, if you’re an IC’s only client, an “audience of one” so to speak, you should start thinking red flag. Admittedly, compliance issues are complicated stuff. There is no predetermined formula that yields a definitive answer to the employee versus contractor question.
But red flags are that color for a reason. If you spot one while dealing with your IC’s, seek help. The IRS and DOL have taken off the gloves.
PayReel’s clients, who are some of the biggest companies in the world, are constantly immersed in the chaos of producing multimedia content or executing live events. PayReel makes sure they have the right contractors at the right time in the right place, and that everyone gets paid properly. And, most importantly, they handle every last detail perfectly while making sure their clients think nothing of it. Relax. We got it.