A recent article in The Wall Street Journal on March 14, 2013 entitled “Payroll Audits Put Small Employers of Edge” prompted us to remind you that misclassifying employees as independent contractors is risky and can be costly.

Many employers look at using independent contractors as a way to save money.  The employer is not responsible for paying the Social Security, Medicare, unemployment taxes and workers’ compensation insurance on independent contractors.  “Some employers also are turning to contractors to avoid hitting the 50-employee threshold that would require them to pay for employees’ health insurance, starting next year, under the federal health-care law, or pay a penalty.”

In addition, it eliminates paying other benefits such as paid time off and provides the flexibility of utilizing the worker only when there is sufficient work.  It can be seen as a great cost savings measure.  “A Michigan State University study estimates that contractors can save employers as much as 40% on labor costs.”

However, the IRS has cracked down on the misclassification of workers over the past three years.  Audits have increased dramatically because the IRS increased its budget for this purpose.  “Since September 2011, the government has collected $9.5 million in back wages for more than 11,400 workers who were misclassified as independent contractors by their employers, the Labor Department says.”

How do you know if you are correctly classifying a worker?

The classification guidelines are not black and white, which is the source of much confusion.  The determination is based on three Common Law Rules:

1. Behavioral.  Does the company control or have the right to control what the worker does and how the worker does his or her job?
2.  Financial.  Are the business aspects of the worker’s job controlled by the payer?  (This includes things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
3. 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?

You must weigh all these factors.  Unfortunately, there is no “magic” or set number of factors that “makes” the worker an employee or independent contractor.  Many times employers do not know that they have misclassified workers until they get audited.

Confused?

If you are still unclear as to the classification of a worker after considering the three Common Laws, the IRS has created Form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) which can be filed by either the business or worker.  The IRS will review the facts and circumstances and then make an official determination of the worker’s status.

Because this is an area of much confusion, many employers do not want to run the risk of penalties from misclassification and choose to hire employees.  We encourage you to measure the workers you have classified as independent contractors against the guidelines.  If you discover that you have misclassified a worker, there is some good news.  In January, 2013 the IRS extended an amnesty program which waives or reduces some of the penalties of misclassification.

Don’t run the risk of IRS penalties.  Please contact us at 239-433-5554 if you would like additional guidance or have questions about the classification of workers.

MNMW is pleased to share the spring 2012 In Addition newsletter.

Read it by clicking on the image below.

Markham Norton Mosteller Wright & Company is pleased to announce that it has successfully completed a rigorous peer review of the firm’s accounting practices. The review concluded the firm compliance with the stringent quality control standards set by the American Institute of Certified Public Accountants (AICPA), the national professional organization of CPA’s.                      

The AICPA established the peer review process to promote quality of service in public accounting firms. The process involves a periodic outside review, performed by another accounting firm, which insures that all public accounting firms adhere to the same level of quality service.              

Markham Norton Mosteller Wright & Company P.A. is a certified public accounting and consulting firm with offices in Fort Myers and Naples. They offer a wide range of services including business consulting, technology consulting, technology management and support, tax preparation and planning, litigation, mediation, forensic accounting and elder services. For more information, call 239-433-5554 or visit www.markham-norton.com.

Sandie Peterson, SPHR and HR Consultant with Markham Norton Mosteller Wright & Company will present on November 17th in conjunction with SCORE and the SBDC at FGCU at the Liles Hotel in Bonita Springs. For more information and to register, please visit www.sbdcseminars.org

Markham Norton Mosteller Wright & Company, P.A. will be hosting a free workshop on September 22^nd to connect business owners with five local banks and the U.S. Small Business Administration (SBA) to learn how to get needed funds to start or expand a business.

Attendees will learn about the types of loans available, the application process, collateral requirements and the criteria for sound loan consideration. Participating banks include Stonegate Bank, Ironstone Bank, Wells Fargo, Encore National Bank and Florida Shores Bank. The SBA will also discuss the specifics of their available loan programs.

 The workshop will be held at 5:30 p.m. at the Hilton Garden Inn in Fort Myers at 12600 University Drive. RSVP to csarlo@markham-norton.com.

Markham Norton Mosteller Wright & Company P.A. is a certified public accounting and consulting firm with offices in Fort Myers and Naples.  They offer a wide range of services including business consulting, technology consulting, technology management and support, tax preparation and planning, litigation, mediation, forensic accounting and elder services. For more information about the firm, call 239-433-5554 or visit www.markham-norton.com.

Finally . . .  Courts rule in favor of Employers

As you are no doubt aware, many employees do not hesitate to sue their employers for Fair Labor Standards Act (FLSA) violations.  There are a number of law firms that thrive on these lawsuits, and advertise relentlessly for the business.  Florida actually has 70% of all the FLSA lawsuits in the United States!

However, there has been a recent victory for employers in the U.S. Court of Appeals for the 11^th Circuit.  They found that an employer who “tenders the entire amount of alleged overtime damages bars a claim for FLSA attorneys’ fees.”  (Dionne v. Floormasters Enterprises, Inc., F.3d.—,2011 WL 318977 (July 28, 2011) (11^th Circ. 2011). 

What does this mean?  If you have had an FLSA violation where you failed to pay appropriate overtime to an employee and you deny liability and make the corrected payment for the entire amount of the FLSA wages claimed by a plaintiff, the lawsuit may be dismissed and you could avoid liability for payment of the plaintiff’s attorneys’ fees.  The hope is that this may deter attorneys from actively seeking out these cases.  At the least, this will reduce the cost if you are sued.

Listed below are some steps you should take to protect your business from FLSA lawsuits:

1. Make certain that you have correctly classified your employees (Exempt and Non-Exempt).
2. Keep accurate records of everyone’s time.
3. Pay non-exempt workers overtime (1 ½ times their regular rate of pay) for hours worked in excess of 40 hours in any work week (a fixed, recurring period of 168 consecutive hours – 7 days x 24 hours).
4. Monitor working time carefully.  (i.e., arriving early, staying late, meal breaks, taking work home, checking e-mails during non-working hours, etc.

The FLSA impacts every business.  If you have questions about classifying employees, timekeeping or defining “work” please contact Sandie Peterson, SPHR at (239) 433-5554.

Markham Norton Mosteller Wright & Company, P.A. announces that Quinn Tinkoff has joined the firm as an administrative assistant in the Fort Myers office. She is working in the Tax Department Prior to joining the company, Tinkoff worked in the retail industry.

Markham Norton Mosteller Wright & Company P.A. is a certified public accounting and consulting firm with offices in Fort Myers and Naples.  They offer a wide range of services including business consulting, technology consulting, technology management and support, tax preparation and planning, litigation, mediation, forensic accounting and elder services. For more information about the firm, call 239-433-5554 or visit www.markham-norton.com.

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