From the HR Pros at Richard A. Beauchemin, CPA /
Carolina Accounting & Tax Services, PLLC
In pursuit of employers who misclassify their workers, the U.S. Department of Labor (DOL) has been aggressively ramping up the number of investigations and its employment law enforcement efforts. We highlighted that in a previous post, which can be found here.
In alignment, the Internal revenue Service (IRS) announced its Voluntary Classification Settlement Program (VCSP), which may offer relief for employers from unpaid employment taxes, penalties, and interest resulting from worker misclassifications. To determine whether or not joining the VCSP would be a smart move, an employer needs to consider some key factors.
Under the VCSP, an employer may voluntarily reclassify their workers as employees for future tax periods for employment tax purposes. To participate in the program, the employer must meet specific eligibility requirements, apply for the VCSP, and enter an agreement with the IRS. An employer may be considered eligible for the program if it:
- Is not subject to a worker misclassification audit currently engaged by a federal or state agency.
- Has consistently treated the workers in question not as employees (i.e., as independent contractors).
- Has filed for the past three years the required Form 1099s regarding the workers.
If the IRS approves the employer's eligibility and participation into the VCSP, then the employer must establish a "closing agreement" with the IRS. The agreement's provisions include, but are not limited to:
- A three-year extension of the statute of limitations for collection of employer back taxes during the first three years upon participating in the program.
- A limit of 10 percent of the employer's employment tax liability that may have been owed on compensation paid to the workers for the most recent tax year, without interest and penalties.
- No audit for employment tax purposes for prior years with respect to the classification of the workers in question.
- Treatment of the identified workers as employees moving forward.
While the VCSP appears attractive at face value, other factors require employers like you to recognize potential risks and, if deciding to participate in the program, to proceed with caution:
- First of all, the IRS is not obligated to accept an employer's application (IRS Form 8952) to the program. So, if an application is rejected, the employer may have in essence, admitted to worker misclassification fault, thus creating a potential case for wage and hour lawsuit claims.
- The IRS relief does not apply to other federal or state agencies (i.e., the DOL) which have similar responsibilities for worker classification compliance enforcement. As established through recent "memorandums of understanding" with participating agencies, IRS information-sharing would likely increase exposure of an employer's liabilities related to worker misclassifications.
- The employer must account for and remedy any previously avoided expenses (i.e., due to failure of complying with minimum wage and overtime laws, of providing company-sponsored employees benefits, of offering workers' compensation and unemployment insurance, etc.).
As more details from the IRS regarding this newly-developed VCSP emerge, employers are encouraged to conduct preliminary research and internal assessment focused on the nature and degree of any worker misclassification issues. Review applicable state and federal classification standards, conduct a company-wide worker classification audit and stay on top of relevant IRS notifications and employment law updates.
Of course, the best course of action, when hiring a new worker, is to classify them properly and place them on your payroll immediately, if they are employees.
In a previous post we highlighted the The Work Opportunity Tax Credit and pending legislation regarding veterans This tax credit will be expiring at the end of the year (2011). This is bad news for businesses that are considering hiring new employees in the coming months. However, the news is not all bad...
There is one targeted group (veterans) included in the Work Opportunity Tax Credit that businesses can hire and take advantage of any even larger credit.
Last week President Obama signed into law the VOW to Hire Heroes Act. This bill expands the payroll tax credit for the Veterans group, contained in Work Opportunity Tax Credit. Businesses hiring veterans will receive tax credits according to the following criteria:
- Business that hire a veteran that has been unemployed for at least four weeks will receive a tax credit of 40% for the first $6,000 of wages paid - a credit of $2,400 per unemployed veteran hired that meets the criteria.
- If you hire a veteran that has been unemployed for more than 6 months you can receive a credit of 40% on the first $14,000 of wages - a credit of $5,600 per unemployed veteran hired that meets the criteria.
- The Wounded Warrior Tax Credit allows business that hires a veteran who have a service-related disabilities to claim a tax credit of 40% on the first $24,000 of wages. a credit of $9,600 per unemployed veteran hired that meets the criteria.
In addition the bill provides for additional support and training for veterans to attempt and reduce the high rate of unemployment for veterans. Additional information can be found here on the House Committees on Veterans Affair's web site.
Are you thinkuing of hiring new employees? Download a free copy of our E Verify Guide.