You have just obtained temporary labor from a staffing agency to supplement your workforce on a long construction project where you will need to carefully direct the actions of the labor. You pay the staffing agency directly for the labor. Can you be certain that the IRS will consider these laborers to be independent contractors and not your employees?
Unfortunately not. Simply issuing a 1099 to temporary laborers or hiring a staffing agency will not ensure that federal or state agencies will agree with your classification. The IRS and Department of Labor have issued multiple publications to assist with analyzing whether an employer-employee relationship exists. They have not created a “bright-line” test. Rather, business owners must analyze factors governing the level of behavioral and financial control that the owner exerts. In the above-example, the duration of work and amount of direction given to the worker may spur federal or state agencies to classify the worker as an employee in spite of the relationship with the staffing agency.
Recent federal tax and labor scrutiny has spurred Virginia to initiate a legislative audit to investigate the issue of worker misclassification. The audit’s findings that one third of audited employers were misclassified led to the creation of an inter-agency taskforce to consider more effective labor and tax enforcement.
The benefits to an independent contractor classification can be significant. Federal and state regulations impose more stringent obligations on employers than those who engage independent contractors. Virginia’s recent audit estimated that worker misclassification costs the state as much as $28 million a year in taxes.
Despite the lack of clear guidance, there are certain steps business owners can take to provide more certainty that they are properly classifying workers as independent contractors. The first is to understand the factors of behavioral, financial, and relational control that the IRS and Department of Labor will consider. The second is to work with an experienced staffing agency that will work with you towards this same goal. Finally, in situations where the same type of workers are hired to perform particular services, the business owner may file with the IRS a Form SS-8 to gain an official determination of the worker’s status. Additional information to help with this classification or hiring the right staffing agency to assist with this decision can be found here.
As president of Hirschler and head of the firm's litigation section, Courtney knows how to lead people and projects to a successful outcome.
Leveraging deep experience in the construction industry, Courtney advises public and ...
Dave’s practice focuses on taxation and business planning, tax credit transactions, trusts and estates, and mergers and acquisitions. He represents clients ranging from professional dental, medical and services practices to ...
Kelly’s practice focuses on construction law, commercial and product liability law, with an emphasis on dispute resolution—including mediation, arbitration, jury and bench trials in state and federal court. She routinely ...
Nate fully engages in each case and shoulders his clients’ needs. Communication, efficiency and careful judgment define his practice. In every case, he investigates competing claims to thoroughly understand their strengths ...
A professional engineer (P.E.) and an experienced lawyer, Webb began practicing at Hirschler Fleischer following four years of work as a consulting engineer. His multidisciplinary practice focuses on general business and ...
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