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NEWS & ALERTSHuman ResourcesBenefit Information   
 

"Employee Misclassification - Full Time or Contracted??"

We are well on our way into 2014 and the country is transitioning to the new regulations established by Affordable Care Act (ACA). ACA has mandated that employers offer health insurance to full time employees. To avoid the costs associated with health insurance, some employers have begun to misclassify their employees as contracted or freelancers instead of full time employees. Lawmakers and regulators are signaling that this year may bring a crackdown on employers who misclassify workers as contracted or freelancers.

Payroll Fraud Prevention Act of 2013 was introduced in November by Senator Bob Casey, D-Pa. The proposed legislation would require businesses to notify workers of their status as employees or non-employees and doubles the penalties for noncompliance with Fair Labor Standards Act. Should the bill pass, compliance of employee classification would be even more of a concern for employers. All employers should be aware of the pitfalls of employee misclassification. IRS guidelines have been established to help employers identify the differences in classification of employees. 
 

   

IRS Guidelines

The IRS spells out the requirements that distinguish a full-time employee from a contracted or freelance employee in a 20 factor test:
 

1.     Instructions 11.  Oral or Written Reports
2.     Training 12.  Payment By Hour, Week or Month
3.     Integration 13.  Payment of Businesses and/or Traveling Expenses
4.     Services Rendered Personally 14.  Furnishing of Tools and Materials
5.     Hiring, Supervising and Paying Assistants 15.  Significant Investment
6.     Continuing Relationship 16.  Realization of Profit or Loss
7.     Set Hours of Work 17.  Working for More than One Firm at a Time
8.     Full Time Required 18.  Making Service Available to General Public
9.     Doing Work on Employer's Premises 19.  Right to Discharge
10.   Order or Sequence Set 20.  Right to Terminate

 The following link explains the IRS 20 factor test in further detail:  http://www.irs.gov/pub/irs-utl/x-26-07.pdf

The Work Relationship

Be aware that even if an independent contractor or freelancer presents a contract, the contract will not protect against penalties in job misclassification if the actual working relationship proves otherwise.  Being knowledgeable of the 20 factors established b the IRS will ensure that job classification is properly administered.

   
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