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Here’s Why The Time to Fix Employee Misclassification Problems is Now

CMMA Blog

If you’ve come anywhere near a Human Resources newsletter in the last six months, you know the government is serious about targeting misclassification of employees as independent contractors. More attention on worker classification means an already risky business is about to get riskier.

Businesses like to work with contractors because it helps them avoid paying for health insurance, 401Ks, and other benefits. Independent contractors are affordable and available for à la carte services. While some worker advocates make it seem like employees always have the preferential role, many workers prefer the autonomy of contracting. They enjoy the flexibility and the ability to work with a variety of companies and pick their projects. In some cases, it’s truly a win/win. 

On the other hand, when it’s done improperly, it can truly be a lose/lose.

Why do the IRS and DOL care so much about worker misclassification?

Employee misclassification is high on the IRS’s list of least favorite things. You can bet if they have their collective knickers in a bunch, there’s one issue at the core: money. Non-compliance with IRS and DOL regulations governing which workers are classified as W-2 employees versus 1099 contractors means lost tax revenue at the state and federal level. That’s because fewer tax dollars are coming from employers without a corresponding increase in tax revenues from independent contractors.

Businesses are equipped to make sure employees stay in line with labor laws, benefits, worker’s comp, unemployment insurance, and of course, tax withholding. Independent contractors, on the other hand, can operate in the wild, wild west of legal lands. They may or may not pay taxes properly, they may overstate their deductions, and they are just harder to keep tabs on. Incidentally, each of these woes also make the list the IRS’s least favorite things.  

This, combined with huge federal and state budget deficits, is a recipe for stepped up surveillance and enforcement. The IRS, DOL, and several state agencies share employer information with specific the goal of tracking down practitioners of worker misclassification. Worse, the government doesn’t care if employers misclassify accidentally. It’s up to you to abide by the law.

What Are the Risks of Misclassifying Independent Contractors?

There are legitimate independent contractors and businesses who employ them properly, but misclassifying an employee as an independent contractor can be incredibly damaging, costly, and time consuming.

With the government’s increased attention on the subject, news bringing misclassification to workers’ minds, and companies coming under scrutiny, one thing is sure: If you haven’t paid attention to worker classification yet, it’s time.

Relax. We Got It

If you’re concerned about misclassification, we’re here for you. It’s our job to know the laws and keep clients compliant. At PayReel , we make sure our clients are able to hire who they want, when they want and that everyone is classified correctly and paid properly. Contact us anytime at 303-526-4900 or by emailing us here.

 

 

 

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The Art of Delegating: How to Multiply Your Bandwidth

CMMA Blog

The adage goes “If you want something done, ask a busy person.” If you are the person that always gets asked, it might be time to think about how to multiply your time using the art of delegating. Engaging a partner for events, worker management, and payroll is one of the quickest ways to increase bandwidth to actually do what they do. Put some of your responsibilities on someone else’s plate and then get yourself a mug to commemorate your status as World’s Best Boss.

Whether it’s a massive event or a one-camera film shoot, when a partner who specializes in event management manages your projects, it works out well for clients and workers alike.

Make Events Easy 

Whether you’re payrolling thousands of workers, sending a crew to an NBA game, or something in between, it’s nice to know all the details are handled. 

At PayReel, we know things don’t operate on a nine-to-five schedule and neither do we. We have an after-hours phone so we can be sure to provide speedy answers. Our online system allows you to take care of just about anything…at any hour…with a few taps or clicks. PayReel handles all the paperwork and the bonus is that we do it without any actual paper. Not having to sift through piles of identical paperwork cluttering up your desk and your headspace makes the process quicker and easier for you and for your workers.

Make Workers Happy With Speedy Payment And Paper-Free Paperwork

By managing all the payment details, including the mountains of W-4s , payroll becomes a non-event for our clients. Workers submit timecards on Mondays and we pay them on Fridays. When they’re paid quickly, they don’t need to call your office, which frees you up to do your job better. Of course, it also keeps workers happy so they are free to focus on your project and happy to come back for your next event. 

The last thing you need once you’ve hired people is to lose their loyalty on the back-end details. Whether they’re working for one day or for a month, we make sure workers get paid quickly and accurately so if you want to hire them again, they’ll be ready to pick up the call.

We’re devoted to making every single client and worker interaction a good one, which makes working with you mighty attractive for workers. As Michael, one of the freelancers PayReel pays, said, “[My Customer Experience Manager] has been superb in addressing whatever problems I have had.”

The bottom line

Clients work with us because we make your life easier and multiply your bandwidth for the things you do best. Not only does our team manage event payroll and payroll taxes; as the employer of record, we even take on all risk associated with a variable workforce. Think you might benefit from hiring a payroll service? Here’s a handy guide to find out more or contact us at 303-526-4900.

The post The Art of Delegating: How to Multiply Your Bandwidth appeared first on PayReel .

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What Can Misclassifying Employees Cost You?

CMMA Blog

The legal battle over which workers can be classified as independent contractors versus employees is nowhere near close to over. Wherever the battles land, one important fact remains: The IRS takes the practice of hiring independent contractors very seriously. That means companies should, too.

Misclassification Costs Businesses Money

While hiring an independent contractor is attractive for the potential money savings that come with outsourcing work that is not central to their main line of business, mistakes can quickly override any savings.

The IRS has very strict guidelines that define true business-to-business relationships.These guidelines are meant to prevent firms from misclassifying would-be employees, thereby avoiding a bounty of state and federal taxes. Making a misstep can be costly—whether it was intentional or not.

There is big-time tax money at stake. According to the court’s ruling on the landmark worker classification Dynamex decision, “the misclassification of workers as independent contractors rather than employees is a very serious problem, depriving federal and state governments of billions of dollars in tax revenue.” That’s billions with a B.

Small businesses can avoid certain taxes with fewer employees and independent contractors can write off business expenses and may also underreport their income. Hence the resulting “deprivation.” The IRS is motivated to recoup those lost dollars.

Misclassification Wastes Time

Audits and court costs alone are expensive and time-consuming even for businesses that do everything by the book. If you’re found in error, back pay adds up quickly. How much are you willing to pay in time and hassle alone?

Save the Hassle

If you have any questions about independent contractor status, trust PayReel to help you make the determination. We screen each employment situation carefully to assess the entire e relationship to make sure you are in complete compliance. 

PayReel and sister company Crew Connection have a 40 combined years of experience helping companies navigate the complex issue of compliance and working with independent contractors.  Call us at 303.526.4900 or email info@payreel.com.

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To view our Partner blog, click here

Misclassification: Your $358,675 Problem

CMMA Blog

Accurate worker classification is important for any company but those with a contingent workforce are especially vulnerable to making missteps. It’s a topic the Biden administration is paying attention to as well. The administration’s recent decision to rescind the “Worker Classification Rule”  makes it easier for workers to argue for minimum wage and overtime protections/compensation.

Big company missteps=Big headlines

You’ve probably seen employee misclassification news about the big companies like Uber and Lyft. With the big headlines, you’ll find big fines: often in the multimillions. But while it may be tempting to think of this as a big company problem, it’s not true.

Think misclassification woes only happen to the big kids? Think again.

You might see headlines about worker classification missteps from brands you recognize, but between increasingly-savvy workers and a Democratic-led administration, the smaller companies are at risk too. Small companies are vulnerable to big problems, too. For example, this at-home healthcare services provider was recently found responsible for over $358K in back wages.

The Bottom Line

It just isn’t worth it to try to avoid the rules or get away without knowing them. You can be held responsible whether you’re a big company or a small one. Between savvy workers and a worker-friendly administration highly focused on worker classification, paying close attention to accuracy pays dividends.

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The New Administration, Worker Classification, And Protecting Your Business

CMMA Blog

We’re 3 weeks into a new administration. While Biden and co get busy on their top priorities, history tells us a little of what to expect during the next four years. The bottom line is that Democratic-led governments tend to tighten up on businesses and are very union/employee friendly. They also tend to increase regulations while Republicans tend to loosen them.
True to trend, Trump’s team based worker classification on an economic reality  test, which would make it easier to define workers as independent contractors while Biden’s plan makes misclassification a top priority and  proposes having more investigators available to address the issue. He also plans to make the test for identifying independent contractors more uniform.

So what does it mean for you?

It’s important for businesses to be compliant under any administration but with strict worker classification being named a top priority for this administration, it’s all the more important.

The bottom line

Someone on your team or on your payroll partner’s team needs to keep up with the changes to protect your business, stay compliant, and reduce the risk for fines and attention from the IRS. If you don’t have the in-house team to do it yourself, it’s worth considering working with a partner.
In our world, accurate worker classification and top notch risk management are always the priority. We are always the first to be aware when change is in the air as well as when something becomes official. We track rules in every state as well as on a federal level and offer services to help clients stay compliant.

The post The New Administration, Worker Classification, And Protecting Your Business appeared first on PayReel .

To view our Partner blog, click here

You Misclassified an Employee. Now What?

CMMA Blog

In the aftermath of the landmark California Supreme Court ruling , there’s much more attention on the W2 employee v. independent contractor debate. That makes it all the more important that companies don’t misclassify a worker — and more costly when they do.

Here’s what you need to know about misclassifying employees:

IT’S A NEW WORLD 

The gig economy, start-up culture and the rapid growth of the independent workforce combined have caused a dramatic increase in scrutiny by government agencies to ensure workers are appropriately classified. 

Updates to the ABC test for worker classification have resulted in the narrowest definition of an independent contractor to date. It’s now even more crucial for companies to evaluate or reevaluate the way they classify employees and get on the right side of the law before the ruling’s ripple effect reaches their headquarters.

EMPLOYEE CLASSIFICATION RULES MATTER

You can’t ignore worker classification rules . And for the companies that do, there’s a potential multimillion-dollar price tag.

Unfortunately, “We didn’t mean to” doesn’t hold up in court. Whether you knowingly or accidentally misclassify employees as independent contractors (ICs), it’s considered wage theft.

Committing wage theft has some serious consequences. According to the ruling, businesses that misclassify workers as independent contractors  deprive federal and state governments of billions of dollars in tax revenue. Big Brother is watching and Big Brother wants its money.

Misclassifying an employee  puts your business at risks of an IRS audit. In addition to monetary fines like back pay, back taxes, severance and healthcare coverage for misclassified workers, you could also be looking at legal fees, reputation damage and even criminal and civil penalties.

For example, if you’re found guilty of fraud or intentional misclassification in Colorado , you “may be fined up to $5,000 per misclassified employee for the first misclassification and up to $25,000 per misclassified employee for a second or subsequent misclassification.” 

Oops, I misclassified an employee. Now what?

CONDUCT INTERNAL AUDITS

Conduct an internal audit  on your company’s policies and documentation process. Run each worker through the ABC test to determine if they really are an IC or not. Look for areas that need improvement. If you’re missing any documentation (like signed contracts), take any steps to get what you need. If you think you’ve misclassified a worker, make sure you carefully document any changes you make. 

Sometimes, you can run your internal audits and still not feel confident you have the right status. If that happens, you can file Form SS-8 , Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. To be safe, you should treat the worker in question as an employee.

Not sure if you’re classifying your employees the right way? Take our five-minute worker classification self-audit and review our worker classification compliance best practices to determine just how independent your ICs are.

HOW CAN I AVOID MISCLASSIFYING MY WORKERS?

Worker roles can evolve over time, as do the rules around worker classifications, so it’s a good idea to review each worker’s classification annually and make adjustments as needed.

That’s a lot of work, which is why many organizations that contract ICs partner with an Employer of Record—a firm specializing in independent contractor compliance and engagement. An Employer of Record helps your company meet compliance standards, reduce misclassification risk and successfully manage independent workers. That’s exactly what we do at PayReel.

LET PAYREEL HANDLE YOUR EMPLOYEE CLASSIFICATION

PayReel will help you manage your workers so your business can focus on doing what it does best. As your Employer of Record, PayReel will help ensure that all your freelance ICs are properly classified and your business stays ahead of the compliance curve. There’s no need to gamble with something so important. Contact us today! You can call us or email.

 

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