Archive for the ‘Sick Time’ Category

The Federal Government and President Obama have announced that they with the IRS will be cracking down on enforcement of employers that misclassify their employees as 1099 independent contractors rather than W-2 employees. With a W-2 employee, the employer deducts federal and state employment taxes for the employee while with a 1099 contractor, the employee is responsible for paying their own taxes. What is most disturbing about this trend by some employers is that in many instances the employees do not even know that they are being claimed 1099 contractors until they get a large tax bill.

Companies can hold down labor costs by as much as 30 percent if they use independent contractors, because they don’t have to pay Social Security and Medicare taxes, provide vacation or sick leave, pay for workers’ compensation and unemployment compensation insurance, or follow minimum wage or overtime provisions. Additionally, employers are protected from potential legal troubles since independent contractors aren’t protected by Title VII of the Civil Rights Act which prohibits discrimination.

So how do you know whether you should be classified as an employee or an independent contractor? Well the IRS has some regulations that address this issue.

Facts that provide evidence of the degree of control and independence fall into three categories:

Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

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?
Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

In the event that you believe you employer has misclassified you, you can file an IRS Form SS-8 with the Internal Revenue Service. This form can be filed by either an employee or employer. The IRS will review all relevant factors and make a determination whether an employee is an independent contractor or employee. The determination can take up to six months but if the IRS determines that you are an employee they can than force your employer to pay required payroll taxes on your behalf.

The IRS Form SS-8 link document is here for your review.

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If you have lost your job one of the very typical questions that I will get is whether after being terminated you still get your vacation or sick pay that you earned. Generally, the first place you should look to determine this is what the employment handbook of your employer has to say on the issue. A good employment manual from an employer should spell out what happens with your vacation or sick pay after you leave employment. If the employment manual does not address it, and if the vacation or sick pay is earned, then my advice normally is that you are entitled to be paid that vacation pay after termination or leaving your employment. Of course, this issue may be affected by laws in your state, so make sure to consult with an employment law attorney in your state before proceeding with any action.

Another issue that frequently comes up is whether you are entitled to receive commissions you earned during your employment that have not yet been paid to you. In most instances you are entitled to be paid these commissions with one general exception. In some cases, if receiving your commission was based upon providing service to the customer after the sale, the employer may have a basis to not pay you your commissions. In addition, most good employment manuals will address in detail what happens to your commissions when your leave the employment of your employer.

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