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PPACA and the misclassifcation of workers
The passing of the Patient Protection and Affordable Care Act (PPACA) created an incentive to classify or reclassify employees as independent contractors, which has subsequently caused many problems with taxation for companies and their workers. Taxand USA discusses what taxpayers can do to protect against potential employment misclassification problems.
Employment misclassification problems could lead to substantial back taxes, interest and penalties for multinationals with operations in the US as well as a risk of legal liability or lawsuits from disgruntled workers. Companies need to substantiate worker classification and demonstrate reasonable cause to support their decisions, ensuring that independent contractor or employment agreements are in place.
To avoid misclassification issues, the IRS’ 20 factors and other guidance on this issue should be referred to. The key questions to consider are:
- In what manner do you assert control over the worker’s behavior?
- What aspects of the worker’s business are controlled by you, the employer?
- Do the workers have their own supplies?
- How are they reimbursed?
- Are there employee-type benefits like vacation, salary and insurance, or is the worker paid for his or her services solely on a job-by-job basis?
Quality tax advice, globally
Also published in Thomson Reuters' Taxnet Pro, 07 July 2014
If you are concerned that you may have improperly classified either employees or contractors look to the existing relief provisions. There are methods available to mitigate the damage caused by misclassification. With the attention placed on the employee vs. independent contractor issue by the PPACA it may be time to reassess your facts documentation and conclusions.