The Internal Revenue Service (IRS) as well as each state have regulations for who qualifies as an independent contractor. Classifying someone as a 1099 worker who doesn’t fit the qualifications may put you at risk for interest and penalties on unpaid payroll taxes that should have been remitted to the tax agencies.
The determining factors include but are limited to:
• Who controls the schedule?
• Whose equipment is used to complete the work?
• Who determines how the work is to be done?
• Are any benefits provided such as insurance or vacation?
A misclassification may be discovered when the “independent contractor” files for worker’s compensation, unemployment or disability. At that time, the IRS and/or tax agency may say tax is owed that should have been withheld from the worker as well as the employer’s tax due on the amount earned. If you have any doubt about someone being a 1099 employee, the rule of thumb would be to play it safe and treat the individual as an W-2 employee. There are 25 basic questions for classification. PriorityHR can help you determine if you should be hiring an employee or classifying the employee as a 1099 worker.
If you have employer in the State of Michigan, and in most states you are required to pay unemployment. There are exceptions for some nonprofit organizations, although, if a nonprofit elects to not pay unemployment, they still have liability if any of their employees should file for unemployment.
Your unemployment liability starts at 2.7% for the first two years of business. At that point, your rate will be calculated based on experience. If you have a high number of former employees who have collected unemployment, your rate can go up. With zero or little unemployment, your rate can go down. Your PEO can work on your behalf to minimize any adverse effects to your SUTA Rate. Unmanaged unemployment claims can end up costing your company hundreds or thousands of dollars over time. For more information, click here!
No. As an employer, you or one of your trusted advisors (PEO or Insurance Broker) needs to have an understanding of how the ACA impacts your organization. You may be under the 50 employee level of the regulations, but you may have reporting requirements. Even as a small employer with just a few employees, your employees are going to have questions that your trusted advisor should be able to help them answer.
Compliance is not optional. Employers of different sizes have different types of requirements. A couple of examples of requirements for all employers are (1) 1-9 verification and proper filing, (2) Posting of worksite employment posters. Keep in mind, ignorance will not prevent you or your organization from receiving fines or penalties.