Tuesday, March 30, 2010

Are You Sure They're Independent Contractors?

Yesterday, CNN Money ran a story called "Auditors Crack Down on 'Independent Contractors'," echoing a similar story that appeared in the New York Times back in February. We've written before on how the IRS differentiates when a person is an employee, or when he or she is considered to be a contractor. Check out the link in that post to an IRS document that spells out the difference between the two.

Companies who utilize independent contractors are not obliged to pay unemployment insurance, or worker's comp, or Social Security taxes, or Medicare taxes . . .

As these articles mention, at a time where the majority of state unemployment insurance coffers are empty, great interest in auditing companies with significant utilization of contractors has revived. Seven billion dollars is seven billion dollars, which is what the IRS is hoping to generate by conducting these reviews throughout the country.

If your business is in the habit of using contractors, make sure that you're in compliance with IRS regulations on the matter. Basically, such folks should not be spending the majority of their time on your premises, using your equipment. They should not be receiving any company benefits, nor should their travel expenses go without reimbursement.

Let's be careful out there. Audits are a real drag.

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