The Voluntary Classification Settlement Program (CSIP) is an optional program that provides taxpayers with the opportunity to reclassify their employees as employees for future tax periods for labour tax purposes, partially exempting eligible taxpayers who agree to prospectively treat their employees (or a class or group of workers) as employees. To participate in this voluntary program, the taxpayer must meet certain eligibility requirements, apply for the VCSP by completing Form 8952, Voluntary Classification Claim, and enter into a final agreement with the IRS. Certain factors define an employee as an independent contractor in all cases: not relying on the company as the sole source of income, working at his or her own pace as defined in an agreement, not being entitled to the benefits provided by the employer, and maintaining a certain degree of control and independence. If you have a reasonable basis for not treating an employee as an employee, you may not have to pay labor tax for that employee. To obtain this relief, you must file all required federal information statements on a basis consistent with your employee`s salary. You (or your predecessor) must not have treated an employee who held a position substantially similar to that of an employee for periods beginning after 1977. See 1976, Section 530 Employment Tax Relief Requirements PDF for more information. Yes, classification can be complicated, but here are 10 key differences between independent contractors and employees that can help your business stay compliant. There are many nuances and exceptions in laws, tests, and definitions of what distinguishes independent contractors from employees. With the constant small adjustments to the laws and different tests of different government agencies, it can be difficult to keep things straight. Hiring independent contractors has many financial advantages, including the fact that traditional benefits such as health insurance, stock options or pension plans do not need to be offered.
Independent contractors deliver goods or services under the terms of a contract they have negotiated with an employer. Independent contractors are not employees and therefore do not fall under most federal labour laws. They are not protected against discrimination in the workplace by Title VII, nor are they entitled to leave under the Family Medical Leave Act. Employers are not required to pay overtime to independent contractors under the Fair Labour Standards Act or to accommodate a contractor`s disabilities under the Americans with Disabilities Act. An employer is also not responsible for the unemployment or workers` compensation benefits of an independent contractor and is not required to provide a pension or other employment benefits to an independent contractor. In addition, an employer does not have to pay labour tax for an independent contractor. If employers mistakenly define an employee as an independent contractor, they may be held liable for past taxes, including the FCIA and the federal unemployment tax. An employer cannot claim that it did not know the laws if it mistakenly classifies an employee as an independent contractor. If employees are not properly classified, an employer may incur penalties and fines, such as: An employer`s tax liability is determined by the employee`s employment status.
If an employee is an employee, employers must pay state and federal unemployment taxes, Social Security tax, and worker/disability compensation premiums to a state insurance fund. If you are unsure whether your employees or independent contractors are properly classified, contact an experienced labor lawyer at Gignilliat, Savitz and Bettis, LLP. Unlike traditional employees, whose duties may include a variety of tasks and tasks, independent contractors are only responsible for providing the services described in a contract or scope of services (SOW). “The hiring goals for each type of employee are also different,” Schneiderman added. “As companies strive to ensure that full-time employees are engaged and work to gain loyalty, the same organizations need to recognize that their contractors are always looking for the next look and are not investing in long-term results as you would expect from full-time employees.” Despite these limitations, joining a union as an independent contractor can bring many useful benefits and resources. The local can help you get health and equipment insurance, advise you contractually and help you find and secure jobs. The union can also fight for your legislative interests and offer educational programs. A thriving example of a unit of independent entrepreneurs is the Guild Freelancers, an active group of freelance writers and journalists who organized as part of the Pacific Media Workers Guild, a local chapter of the CWA. Another great example is WashTech (the Washington Tech Workers` Alliance), a CWA site founded in 1998 by Microsoft contract employees. The IRS will look at certain factors to see if an employee is self-employed or should be an employee of a company. These factors, according to attorney Christy L.
Foley, include: The table highlights some differences in business relationships with employees and independent contractors. .