Scarinci Hollenbeck, LLC
The Firm
201-896-4100 info@sh-law.comFirm Insights
Report: Companies Failing at Worker Classification
Author: Scarinci Hollenbeck, LLC
Date: August 14, 2013
Key Contacts
Back
A large number of small, mid-market, and large companies nationwide are failing to comply with the Internal Revenue Service rules that govern worker classification status, a new report reveals.
The Treasury Inspector General for Tax Administration, looking to ensure tax compliance, released new findings that show many companies who continue to misclassify employees as independent contractors. This malpractice then leaves them open to audits, penalties, and fines. The agency came to this conclusion after investigating an SS-8 program, which allows workers and employers to request a determination letter from the IRS saying whether a worker should be classified as an employee or independent contractor.
After examining more than 5,300 cases in which the IRS deemed a worker to be an employee, the agency found that only 17 percent of employers “appeared to comply with the ruling and issued one or more W-2 forms to their workers during tax years 2008 through 2010.”
In addition, 19 percent “appeared not to have complied with the determinations and issued a form 1099-MISC instead of a form W-2 to their workers for tax year 2008, 2009, and/or 2010.” Meanwhile, 65 percent did not issue a form 1099-MISC or W-2 to their workers, meaning that these workers were either no longer employed by the company or may have been paid under the table.
There are several reasons for which companies may want to classify employees as independent contractors. Under the contractor status, employers are not required to provide benefits coverage or withhold income. Further, companies are shielded from paying worker’s compensation coverage as well as payroll taxes.
However, employers who misclassify workers as contractors to save money may face steep penalties for doing so. In addition to suffering reputational damage, these tax law violations may also levy penalties and interest and the payment of back taxes owed to the IRS. Finally, companies may be forced to reimburse workers for wages that should have been paid under the Fair Labor Standards Act, including overtime and minimum wages, and benefits afforded regular employees.
- Practices: Tax and Trusts & Estates, Corporate Transactions & Business
- Locations: Red Bank, NJ, New York City, Little Falls, NJ
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
Business Mediation: An Overview and Practical Tips
Business mediation is a confidential, voluntary process in which a neutral third party helps companies negotiate a resolution to a commercial dispute without going to trial. Because working with a mediator is very different from litigating in the courtroom, it is important to understand how commercial mediation works, when it makes sense for your dispute, […]
Author: Paul Grossman
Top 5 Causes Leading to Construction Defect Litigation
The five most common causes of construction defect litigation are design defects, substandard materials, workmanship defects, code violations, and subsurface defects. Because these flaws can compromise a building’s integrity, functionality, or safety, they frequently lead to disputes involving multiple parties and high financial stakes. Key takeaways: What is Construction Defect Litigation? Construction litigation is complex, […]
Author: Paul Grossman
How to Protect Your New Jersey Business When Going through a Divorce
The most effective ways to protect your business in a divorce are put in place before one begins: a prenuptial or postnuptial agreement, clean separation of business and personal finances, and divorce contingencies built into your operating or buy-sell agreements. If divorce is already underway, the priorities shift to establishing how the business is classified […]
Author: Jay McDaniel
10 Common Issues in Franchise Disputes
The most common franchise disputes involve breach of contract, franchise termination and non-renewal, intellectual property rights, territorial encroachment, royalty and fee payments, franchisor support obligations, and violations of state franchise laws such as the New Jersey Franchise Practices Act. Franchisors and franchisees can often resolve these conflicts by providing written notice detailing the dispute and […]
Author: Paul Grossman
Reputational Risk and Legal Exposure: Why New Jersey Businesses Must Manage Them Together
New Jersey businesses must manage legal and reputational risk together because modern disputes play out on two fronts at once: the legal proceeding itself and the court of public opinion, where customers, employees, investors, and business partners often reach conclusions long before a judge or jury has had the opportunity to evaluate the facts. Success […]
Author: Sean M. Pena
Eviction Is Not Always the End: Understanding Post-Possession Rent Claims in New Jersey and New York
No. An eviction does not automatically end a tenant’s obligation to pay rent. Post-eviction rent claims are common because recovering possession resolves who has the right to occupy the premises, but it does not extinguish the tenant’s contractual obligations under the lease. Whether unpaid or future rent remains owed depends on three factors: the lease’s […]
Author: Donald M. Pepe
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.