Independent Contractor Crackdown

If your business uses independent contractors, get ready for new scrutiny. Hoping to boost tax revenue, the IRS and many state governments are cracking down on how companies classify their workers.

When employers report wages for independent contractors on IRS form 1099, rather than a W-2, they aren’t required to pay unemployment insurance, worker’s compensation insurance or payroll taxes for them. But the rules governing which workers are genuinely “independent” are strict — and often flouted.

The Internal Revenue Service launched a program last month that will randomly examine 6,000 companies over the next three years for employee misclassifications. The federal government estimates it will raise $7 billion over the next 10 through tighter enforcement.

The IRS audit program is just the beginning of what will be “a new era of compliance,” says Gene Zaino, president and CEO of MBO Partners, a services firm that specializes in the independent contractor market. “Most states are now sharing data with the IRS, and many have set up task forces specifically [to address] misclassification. It used to be that if a business ran into trouble with a state labor department or with the IRS, the issue was isolated. Now, any kind of audit or compliance finding can set off a domino effect where the other agencies will get in on the action. ”

Getting audited can be scary even for businesses that keep everything by-the-book. Chris Daly, co-owner of Kinespirit fitness studios in New York City, got an audit notice in January from the New York State Department of Taxation’s Unemployment Insurance Division, which wanted to probe Kinespirit’s use of contractors. Like more than 30 states, New York has run out of money in its unemployment compensation fund and is borrowing from the federal government to keep paying claims.

“We knew we were doing it right but that doesn’t mean we weren’t concerned,” Daly says. “We understand the situation states are in; unemployment insurance is a needed tool, and we understand the need to fund that tool. And there are companies out there that don’t want to fund their share.”

Kinespirit classifies its managerial and administrative staff as employees and its fitness trainers and instructors as contractors. The audit process was exhaustive, but the company emerged clean.

Following the rules: So what’s the correct definition of an independent contractor? It depends on who you ask.

Some business advisors say a true independent contractor is employed by a separate corporation or legal entity, either one they own or a third-party firm. That rules out freelancers who don’t formally set up a business structure to house their 1099 income.

But hewing to that definition didn’t work for Mega Builders, a Chicago-area construction company that got hit with a $328,500 state fine in December on the grounds that it had misclassified 18 of its employees as independent contractors. The company allegedly forced its workers to incorporate, even though they didn’t operate bona-fide businesses, says Jeffrey Risch, an attorney familiar with the case and a partner at the St. Charles, Ill., firm SmithAmundsen.

In his audit, Daly says the state examiners seemed most interested in whether his so-called independent contractors were able to control their own schedules and the manner in which they perform their work.

But for 352 Media Group, a Gainesville, Fla.-based Web development firm that recently reorganized the way it handles independent contractors in order to ensure compliance, one of the important issues was where the work is completed and who owns the equipment used.

“We used to have contractors working in our office on regular schedules and using our equipment, which was cause for concern,” says Geoff Wilson, 352’s president and CEO. “Thankfully, when we hired a new HR director, she discovered this problem and worked with our contractors to either convert them to employees or make sure they were doing the proper things to maintain their contractor status.” That included using their own equipment, working out of their own home or office and taking on jobs for other clients.

While the IRS publishes guidelines for determining worker classification, the IRS factors are “similar, but not identical, to tests relied upon by other agencies, such as worker compensation and unemployment insurance agencies,” says Susan Bishop, attorney at Campbell, Calif.-based Pratt & Associates. “Factors from all applicable agencies should be considered when making a decision.”

If you’re not sure whether your independent contractors are properly classified, review the appropriate guidelines from your state and the IRS, or — better still — consult a local tax attorney or accountant to help you sort it out. You can request a determination by the IRS by filing Form SS-8, Bishop notes. Third-party firms like MBO Partners also advise employers on contractor issues for negligible fees.

Like Mega Builders, firms that are audited and found to be incompliant can face steep fees. The best course of action is to examine your worker classifications now, before a government entity gets involved.

“Using contractors offers a lot of benefits, but you have to make sure you’re doing it right,” says 352 Media’s Wilson. “You don’t want the government to come calling and decide you owe a lot of back taxes for classifying contractors incorrectly. Be vigilant about reading the government’s contractor classification guidelines and make sure your contractors actually fall within them.” -CNN Money

No Amount of Self Promotion Will Save You.

The Secret Ingredient of Social Media Is…Value BY FC Expert Blogger Rich BrooksMon Mar 29, 2010

The Secret Ingredient of Social Media Is…Value.  We’ve all seen people and businesses whose Twitter stream seems like the ramblings of an OCD sufferer; tweet after tweet about how you should visit www.theircompany.com. Those are selfish tweets, and provide no value or interest to anyone outside the company.

It’s too easy to disconnect from someone in the social media arena. Every tweet, every Facebook status update, every new YouTube video uploaded, is an opportunity to unfollow, unfriend or unsubscribe. If you aren’t continually providing value to your audience or community, there’s someone else who’s willing to be that person and capture their attention.

Value means different things to different people. Depending on you and your business, your value may be in providing timely advice to help people save money. It may be in tweeting links to the best new blog posts in a given industry. It may be in answering questions from customers, prospects and strangers. Or, it may be in being sarcastic, irreverent or even NSFW.

There’s an unwritten social contract in social media that we’re all going to provide value to our community; it’s a meritocracy of value. Those who provide the most value rise to the top.

Certain people may work the self-promotion angle of social media harder than others, but if they’re not providing value at the end of the day, no amount of promotion will save them. You may tire of hearing from one or another of the louder (shriller?) voices in the social media arena, but undoubtedly they’re providing value for a portion of the community or they would have tired themselves out.

As you carve out your own social media niche, be sure that you provide value with every tweet, every status update, every blog post, and every email newsletter you send out, and you’ll reap the rewards of a well-informed, well-engaged community who want to return the favor.

What do you do to provide value to your community, or what have you seen that shows a company is providing value?

Health Care Reform – Timeline

Health Care Reform – Timeline

The federal healthcare reform legislation, know as the Patient Protection and Affordable Care Act, signed by the President on March 23, 2010, and the Health Care and Education Reconciliation Act approved by Congress, soon to be signed by the President, will expand the availability of health care coverage to millions of Americans. While some of the measures will be implemented this year, many do not take effect until 2014 and some extend out to 2020.

Below is a high-level overview of the timeline.  It is important to note that many of these reforms and their effective dates are subject to the rules and regulations process both at the state and federal levels – which could alter the intended timing of implementation:

2010

New Programs:

• Temporary retiree reinsurance program is established
• National risk pool is created, small business tax credit is established
• $250 rebate for Medicare members who reach the ”doughnut hole”

 

Insurance Reforms:

• Prohibits lifetime benefit limits – based on dollar amounts
• Allows restricted annual limits on the dollar value of certain benefits
• Coverage rescissions/cancellations are prohibited (except for fraud or intentional misrepresentation)
• Cost-sharing obligations for preventive services are prohibited
• Dependent coverage up to age 26 is mandated
• Internal and external appeal processes must be established
• Pre-existing condition exclusions for dependent children (under 19 years of age) are prohibited
• New health plan disclosure and transparency requirements are created

2011

Insurance Reforms:

• Uniform coverage documents and standard definitions are developed
• Minimum medical loss ratios are mandated

 

Medicare Reforms:

• Medicare Advantage cost sharing limits effective
• Medicare beneficiaries who reach the doughnut hole will receive a 50% discount on brand name drugs
• A 10% Medicare bonus will be provided to primary care physicians and general surgeons practicing in underserved areas, such as inner cities and rural communities.
• Medicare Advantage plans would begin to have their payments frozen.

 

Other:

• Employers are required to report the value of healthcare benefits on employees’ W2 tax statements.
• Annual industry fee for pharmaceutical manufacturers of brand name drugs.
• Voluntary long term care insurance program would be made available to provide cash benefit for assisting disabled individuals to stay in their homes or cover nursing home costs. Benefits would start five years after people begin paying a fee for coverage.
• Funding for community health centers would be increased to provide care for many low income and uninsured people.

 

2012

• Hospitals, physicians, and payers would be encouraged to band together in “accountable care organizations.”
• Hospitals with high rates of preventable readmissions would face reduced Medicare payments.

 

2013

• Individuals making $200,000 a year or couples making $250,000 would have a higher Medicare payroll tax of 2.35% on earned income —up from the current 1.45%. A new tax of 3.8% on unearned income, such as dividends and interest, is also added.
• Medical expense contributions to flexible spending accounts (FSAs) limited to $2,500 a year—indexed for inflation. In addition, the thresholds for claiming itemized tax deduction for medical expenses rise from 7.5% to 10% of income.
• Medicare device makers would have a 2.9% sales tax on medical devices; devices such as eyeglasses, contact lenses, and hearing aids would be exempt.

 

2014

Coverage Mandates & Subsidies:

• Individual and employer coverage responsibilities are effective. 
• Individual affordability tax credits are created and small business tax credits are expanded.

Health Insurance Exchange & Insurance Reforms:

• State individual and small group health insurance exchanges operational.
• Guaranteed issue, guaranteed renewability, modified community rating and minimum benefit standards (“essential benefits” plan) effective. 
• Lifetime and annual dollar limits are prohibited for essential benefits.
• Pre-existing condition exclusions are prohibited.

 

Taxes & Fees:

• Addition of new taxes on health insurers

 

Medicaid and Medicare Reform:

• Medicaid expanded to cover low income individuals under age 65 up to 133% of the federal poverty level—about $28,300 for a family of four.
• Minimum medical loss ratio of 85% required for Medicare Advantage plans

 

2018

Taxes & Fees:

• Tax (“Cadillac tax”) imposed on employer sponsored health insurance plans that offer policies with generous levels of coverage.

 

2020

Medicare Reform:

• Doughnut hole coverage gap in Medicare prescription benefit is fully phased out. Seniors continue to pay the standard 25% of their drug costs until they reach the threshold for Medicare catastrophic coverage.