Colorado Staffing Agency-Denver Payroll Services for Contract Staffing
- 1/5/12 |
- 10:00 AM
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If you are not able to determine the classification clearly, err on the side of caution and use a Colorado staffing agency or Denver temp agency to eliminate misclassification and costly consequences through the agency’s Denver payroll services.
Independent Contractor or Employee?
The Supreme Court has claimed there is no single test for determining if an individual is an independent contractor or an employee according to the Fair Labor Standards Act. Even in legal terms, the line between an independent contractor and an employee is not always clear. However, the cost of misclassification is punitive.
Many Colorado businesses, regardless of size, classify individuals providing a service, such as Accountants, as independent contractors even though the employer/business may have, for example, “behavioral control” over that individual. In the case where “behavioral control” is evident, misclassification of an individual as an independent contractor may have a number of costly legal consequences on your company.
Why Are Many Individuals Misclassified?
Why? In some cases possibly to avoid payment of payroll taxes to US Treasury or for the simple reason that the IRS laws, especially the consequences for misclassification, are not fully understood.
Eliminate Misclassification Concerns by Using a Denver Staffing Agency
In order to avoid misclassification you might consider using a Denver staffing agency to bring a specific talent on board for a project, long term need or a season. This is best done through J. Kent’s Payroll Services which allows companies to continue with their current independent contractors that have been misclassified and avoid independent contractor concerns and issues. The Colorado staffing agency hence becomes the clear Employer of Record, and misclassification concerns and their consequences are put to rest.
Evidence of Employment Relationship Determined by Degree of Employer Control Exercised
Whether a person is an independent contractor or an employee generally depends on the amount of control exercised by the employer over the work being done. Spelling out and describing how a job is to be done or limiting the actions of the worker may establish an employer-employee relationship. In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
What are the Common Law Rules Used?
Facts that provide evidence of the degree of control and independence fall into three categories. The Denver employer hiring someone as a legal independent contractor must consider:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the Employer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
General Guidelines to Consider In Determining The Classification
|Operates under a business name||Performs duties dictated or controlled by others|
|Has His/her own employees||Is given training for work to be done|
|Maintains a separate business checking account||Works for only one employer|
|Advertises his/her business services|
|Invoices for work done|
|Has more than one client|
|Has own tools and sets own hours|
|Keeps business records|
Your Workers Are Not Independent Contractors Because You Say They Are
Businesses of every size rely on independent contractors for their specialized and general Denver staffing needs. There are many benefits to using contractors over hiring employees to include: savings in labor costs, saving in tax burden costs, savings in administrative costs, savings in personnel management and supervision, reduced liability, flexibility in hiring and firing, etc. But there are also consequences for misclassification.
Consequences of Treating an Employee as an Independent Contractor
If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker for all previous years of work provided. If your independent contractor is discovered to meet the legal definition of an employee, you may be required to:
- Reimburse them for wages you should've paid them under the Fair Labor Standards Act, including overtime and minimum wage
- Pay back taxes and penalties for federal and state income taxes, Social Security, Medicare and unemployment
- Pay any misclassified injured employees workers' compensation benefits
- Provide employee benefits, including health insurance, retirement, etc.
- See Internal Revenue Code section 3509 for more information.
Weight All Factors When Determining Independent Contractor Classification
Denver employers must weigh all these factors when determining whether an individual providing a service is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
Source: www.IRS.gov and www.sba.gov for more information on independent contractor vs. employee