Is Your Staff Classified Properly?

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The Employee VS. Independent Contractor Debate

The classification of personnel affects how much a business pays in taxes, if withholding from paychecks is necessary and what tax documents to file. Misclassification of an employee can result in penalties and additional taxes. There are many questions to ask in determining the classification of personnel. There are three main categories the IRS uses in determining the classification. They are listed below in bold:

Behavioral Control:

The first question to ask in determining classification: Does the company control what the worker does and the manner in which he or she does their job? For example, do you set the hours the worker works? Do you set the work location? Do you provide all of the resources and materials? Do you provide training? If you can control what is done and how it is done then your workers are probably employees. If you can control only the outcome of the work and not the method of reaching the outcome then your workers are probably independent contractors. However, there are other factors involved in determining classification.

Financial Control:

Can the worker realize a profit or loss? Meaning, does the employer provide the work location and all resources to perform the job. If so, then there is no profit or loss to be realized. If these items are not provided then there is a profit or loss. This will usually mean the worker is classified as an independent contractor. How do you pay the worker? If you pay a flat set fee the worker is probably an independent contractor. If you pay for a period of time, such as hourly or weekly the worker is probably an employee. Does the worker provide services to other businesses? If so, they are probably an independent contractor.

Type of Relationship of the Parties:

What is the underlying nature of the relationship? Sometimes a written contract is necessary to prove this. Does the business provide the worker with benefits, such as insurance or vacation pay? An independent contractor does not receive these type of benefits from an employer. What is the length of time the relationship is expected to last? If it is indefinitely, the worker is most likely an employee. Are the worker’s duties an integral part of the operation? If so, they are probably an employee.

It is important to note, the worker must meet multiple rules before determining their classification.

As a business owner, if you would like to hire an independent contractor it is advisable to find one that is self-employed and pay them through their company. While this alone is not enough to determine classification it can help prove the nature of the relationship.

Copyright 2014 Christi Rains, Alpha Omega Consulting & Bookkeeping, LLC

The Seven, not-so-deadly, Sins of Small Businesses

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Be Sure Your Business Isn’t Making These Common Mistakes

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During my time working with small business owners, and of course being one myself, I have found that there are certain common mistakes that can ultimately doom most businesses.  All too often, small business owners become enamored with the idea of “being their own boss” and doing something they “love”.  These thoughts often cloud the judgment of even experienced business owners in their desire to pursue the American Dream.  In order to avoid these pitfalls you have to establish a strong foundation to your business; put in place systems that will help you keep your feet firmly planted in reality while you pursue your dreams.  Below, I have listed seven common mistakes that prevent entrepreneurs from building that strong foundation for their dreams;

  1. Seek professional advice

“Concentrate on your strengths and seek help for your weaknesses.”, that is the first piece of advice I give to any new entrepreneur.  Seeking out trustworthy professionals to guide you through the start-up process will help you to avoid all manner of financial and legal problems.  Later on, when the company is up and running, these same professionals will continue to be valuable members of your team. In order to grow your business you need to be able to concentrate and put your energy into your core business. Allow the professionals to take care of tasks such as; accounting, marketing and legal affairs while you manage growing your business.

2Create a formal business plan

Creating a formal business plan is important for any business. Think of a business plan like a road map.  It can aid you in determining specific goals and be a guide to help you stay on track.  In the process of creating one you will determine the size, location and buying pattern of your target market and the feasibility of your business idea. It can also be useful when seeking outside funding from banks or other types of investors.

3. Form a legal entity

If you are thinking of starting a business as a sole proprietor or are already doing business as a sole proprietor you need to examine your threats and determine if it’s really right for you. It’s important to note that a sole proprietor is not a legal entity. There is no separation between the business and the owner. Because of this, the business will cease to exist when the owner dies. Also, this form of business does not provide any type of personal liability protection between your business and personal assets. If you want to develop a successful long term company, it is advantageous to form the proper legal entity

Continue reading

The Employee VS. Independent Contractor Debate

Standard

09b648b8dcef9fe46e0cbc962fafbef5

The Employee VS. Independent Contractor Debate

The classification of personnel affects how much a business pays in taxes, if withholding from paychecks is necessary and what tax documents to file. Misclassification of an employee can result in penalties and additional taxes. There are many questions to ask in determining the classification of personnel. There are three main categories the IRS uses in determining the classification. They are listed below in bold:

Behavioral Control:

The first question to ask in determining classification: Does the company control what the worker does and the manner in which he or she does their job? For example, do you set the hours the worker works? Do you set the work location? Do you provide all of the resources and materials? Do you provide training? If you can control what is done and how it is done then your workers are probably employees. If you can control only the outcome of the work and not the method of reaching the outcome then your workers are probably independent contractors. However, there are other factors involved in determining classification.

Continue reading