There’s alot of talk going around about misclassification of employees. Most of it concerns employers and their use of independent contractors and the practice of avoiding the proper payment of payroll taxes. So it’s government talk. It’s a problem that most lawmakers want to stamp out and for good reason.
This topic has to do with the age old discussion as to whether a worker is an employee or an independent contractor. Most governments, state and or federal, will want to work towards having all workers considered employees for the simple fact that they will then be allowed to collect proper payroll taxes. Most employers have the typical employer employee relationship with their workers. However some employers make use of both traditional employees and what they may call independent contractors. And you’ll find that many employers will want to show a worker as an independent contractor to avoid those very same taxes. Sometimes they’re right and sometimes they’re wrong and when they’re wrong it can lead to big problems with the governing tax authority!
So what’s all this have to do with workers compensation? The term “misclassified employee” can have different meanings. From the government stand point it directly relates to the avoidance of taxes and creates potential legal issues for an employer caught up in the argument of employee or independent contractor. From the workers compensation stand point it means that an employee’s payroll, was, is or has been improperly placed into the incorrect workers compensation classification code. Or it could mean that the governing classification used for a business is incorrect.
As a side note, the misclassification of an employee, whether it’s payroll assignment or code related, from the workers comp side can result in incorrect premium that an employer pays. Either to low or to high. Misclassified employee from the government side can result in payment of uncollected taxes, fines and even potential fraud charges being levied against the employer.
It’s easy to see how confusion surrounds the use of the term “misclassified employee.” You must use it in the correct context.
Who is considered an “employee” and what is an “independent contractor?” You’ll find that the term “employee” is defined under workers compensation state statutes for issues pertaining to workers comp. You’ll need to look to the test the IRS uses as to who’s considered an employee when dealing with tax issues. “Independent Contractor” is a term that is also defined in most states in regards it’s use for workers comp. Typically an independent contractor will be an entity that’s hired by another to complete some type of work. Think of a home owner who hires a heating and cooling company to check their furnace before using it for winter. It’s pretty clear in this situation that the heating and cooling company would be an independent contractor. A few points about independent contractors, they are hired to perform a specific job; there is a definite beginning and ending to the job; they operate as a separate entity that has its own employees, pays its own bills and taxes and does work for many other individuals.
So if you have workers compensation problem with a misclassified employee or independent contractor contact our office for help. And if you have a tax issue about misclassified employees be sure to contact a qualified tax accountant or attorney in your area!
Again, an age old discussion.
Hope this helps you out! Thanks!
