Are Your Workers Employees or Independent Contractors?

Have you ever wondered if those working for you are employees or independent contractors? This week we start to delve into this subject. Watch the video to learn more!

Referenced links: Independent Contractor or Employee

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Transcript:

We get questions on a regular basis surrounding whether or not someone that you have working for you or with you is an employee or an independent contractor. We have articles, and in fact, we even have some continuing medical education hours that are available for learning through our on demand catalog that cover a lot of these issues that surround independent contractors. It’s an incredibly complicated process to really get your hands around and that’s even after the IRS, over the last decade or so, have really kind of modified how they present this and the factors that they consider. In fact, now they’ve got it down to 11 factors that are grouped into three different arenas. Now those 11 factors aren’t simple checklists, so you can’t just go through and check it off and say, oh, okay, that makes them an independent contractor, or that makes them an employee, but those 11 factors are what the IRS looks at on a case by case, or in your case, an office by office basis, to determine whether or not the person you have working with you is an employee or is an actual independent contractor. It’s a common mistake. In fact, many times, we will find that that our physician offices will not, not on purpose, but inadvertently classify someone who really is an employee as an independent contractor, because they just don’t meet the preponderance of the evidence and in the checklist that the IRS provides.

So we just kind of want to give you, it’s going to be a multi-video series that will record over the next handful of weeks, because there’s a lot of factors, but this one is kind of the baseline. It’s what you have to understand right up front. But here’s what it is, is those 11 factors are wrapped up into three kind of sub-groupings, and it’s behavioral control, and a lot of that surrounds, maybe hours and workplace and how they do their job. Financial control and that would be like how they’re paid, expenses, or, you know, are they reimbursed? Do you provide their supplies, the tools that they need to be able to perform that function for your practice, then the last is the type of relationship. In other words, you have a written contract. Do you give employee-style benefits to this person? Do they perform something that is a key aspect of the business? All of these things are important considerations, and we’ll go through those categories in future videos. But here is why it’s so important, beyond the fact that you want to make sure that you’re able to delegate appropriately, which are considerations for physicians practices, and you want to make sure that your tax filings are correct and you’re not in violation of any of these laws that surround employees and independent contractors. But there are also penalties, and the penalties are enough that you want to take note.

In short, what happens is the penalties, the way they work is ultimately, if you inadvertently classify someone as an independent contractor, then actually an employee. In those cases, here’s how all of that rolls. One is you take one and a half percent of all of their wages, and that starts the penalty process. The next piece is you then have to pay all of the employer side of FICA that they would have previously paid on their returns. And you also have to pay 40% of the employee’s portion of FICA. So now you’re paying not just your portion, but also 40% of their portion of FICA. And then for all of that unpaid tax that you would have to pay interest in the amount of a half a percent per month. And that would all then be totaled up. And then that means you also would have not been filing the appropriate W-2s, so you’re charged another $50 for every W-2 you did not file that you should have. So that’s the penalties if it’s just a mistake.

Now, if you’re intentionally avoiding calling them an employee when you know, and the preponderance of evidence will show that you know, then, then ultimately, they kind of consider that a fraud-type case where you’re intentionally defrauding and not paying the appropriate taxes. In those cases, basically take everything I just said for what happens when it’s inadvertent, but instead, also you’re going to pay 100% of the employee side of the taxes. There’s a $1,000 penalty per employee, plus, again, all of the others. There’s also some, even, you know, in some rare cases, there’s some potential jail time that’s associated with it. But all of that’s on a per-employee basis. So it is really important that you take the time to understand how to properly classify your employees, and we hope this kind of gives you that baseline.

If you want to go through and read the article, it’s already out there right now, you can go to ilchiro.org/independent, that’s ilchiro.org/independent and you can get the kind of the full scope and the full picture. Again, we’re going to be recording and releasing videos in the coming weeks to hopefully help you gather around and gather all the information you may need for independent contractors. We hope this helps you out, and we will catch you next week with the next one in the series.