Are my Workers Employees or Contractors?

 

Employee or contractor?

Determining whether workers should be classified as employees or contractors affects whether many aspects of the Fair Labor Standards Act (FLSA) apply—such as overtime pay. Also, the Internal Revenue Service (IRS) keeps a close eye on employee classifications to make sure employers don’t avoid payroll taxes.

Government figures estimate 25–30% of all employees are misclassified as independent contractors. If the misclassification is discovered, clients will owe up to three years in back wages for any overtime, as well as penalties for insurance and benefits denied under the Affordable Care Act.

What is the difference between employees and contractors?

While the IRS, the FLSA, and common law have all helped define the differences between an employee and an independent contractor, the difference between the two is not totally cut and dry.

The IRS generally assumes an employee relationship, but the line can sometimes be ambiguous. For detailed information on the difference between independent contractors and employees, consult the IRS guidelines.

Employees:

Employees work at a specific time and place set by the employer and generally work for just one company.

The employer provides training, tools, and work-related resources. They are subject to a large degree of control by the employer and are generally paid a salary or hourly wage.

Employees must fill out the following forms which need to be kept in employer records:

1. W-4 form to indicate how much income tax they want withheld from their paychecks

2. I-9 form to prove they’re allowed to work in the US—employers also need to check their passport or other ID on or before the first day of work

Once onboarded, my payroll partner, Gusto can take care of sending a New Hire Report to the state. The state uses the details to keep track of people who owe certain government debts, like child support.

At the years end your company must report all compensation paid to an employee during the tax year using a Form W-2.  

Don't forget about the state and federal unemployment insurance as well as Workers' Comp Insurance. 

Contractors:

Contractors can work whenever, and sometimes wherever, they’d like.

They can pick up contracts for multiple companies and typically provide their own tools and resources. Pay is generally a flat fee or paid on a project basis.

Other than the 1099 forms at the end of the year (Report payments of $600 or more in a calendar year using a Form 1099-NEC) required by the federal government, there may be nothing to report to the government about the contractors you have hired. However, some states do require that a New Hire Report is submitted by the payee (that's your company). If this is the case, I can have my payroll partner, Gusto submit it on your company's behalf.  

You must request a W-9 from each contractor and keep it in your records.

As your bookkeeper, should you decide to have I'm the Bookkeeper handle your payroll for you as a stand alone service, you should feel confident to know that I have partnered with Gusto Payroll.  

US News has rated Gusto a 4.3 in their Best Payroll Software of 2022 list and report that "more than 100,000 businesses across the country use Gusto to run payroll and administer benefits". 

Yes, with Gusto we can offer your employees benefits, with the current state of the country and difficulty retaining good employees - this is a valuable resource! 

If you would rather administer your own payroll and are currently shopping or considering a change, I recommend Gusto. Check it out and sign up using my link if you want to manage your own payroll account and you'll automatically be added to my client list. 

https://gusto.com:/partners/invite/i-m-the-bookkeeper-7756161242744851

Even if you decide not to retain my services for your payroll, I still recommend Gusto, and if you sign up using THIS DIFFERENT LINK and run your first paid payroll, you’ll receive a $100 Visa gift card! 

 https://gusto.com/r/victoria0ab2

Let's Talk about Workers' Compensation Insurance : Do you need it?

Workers’ compensation insurance

Workers’ compensation and payroll go hand-in-hand. Although it falls outside of the payroll process, having a workers’ comp policy is mandated by nearly every state in order to protect employees who get hurt on the job.

Overview

When an employee gets injured at work, they can file a workers’ compensation claim. In return, they (generally) aren’t allowed to sue their employer for any negligence that might have caused the injury.

In nearly all states, a workers’ compensation policy is the only remedy available for accidental workplace injuries. That means that as long as clients pay their premiums, they’re protected from a big out-of-pocket payment if an employee gets injured on the job.

Most states have laws that dictate how much employees should be paid out and what type of benefits they should receive. Usually workers’ comp covers around two-thirds of an employee’s wage, but it can also cover things like medical care, retraining costs, and survivor benefits.

Requirements

If you have employees that aren’t owners of the company, they are likely required to buy workers’ compensation coverage. The only state that doesn’t require workers’ comp insurance is Texas.

To make sure your clients stay compliant, check state laws to be clear about their workers’ compensation requirements.

Costs

Employers pay for workers’ comp insurance and if an employee files a claim, the insurance company pays out the benefits.

Like any type of insurance, the cost really depends on your client’s business, industry, and the type of work that their employees perform. However, the average cost of workers’ comp insurance is around 1.4% of a person’s total compensation.

Insurance Types

There are three major types of workers’ compensation insurance policies to be aware of:

● Traditional insurance: this works the same as most insurance policies, in that clients pay a regular premium

● “Pay as you go” insurance: the premium is calculated based on the amount paid in each payroll period and is only available if the policy is integrated with a payroll provider

● State fund: insurance is purchased through a state-governed insurance provider

While most states allow employers to buy private insurance, five states and two US territories require insurance to be purchased exclusively through state-operated funds. Those states and territories are: Ohio, Wyoming, Washington, North Dakota, West Virginia, Puerto Rico, and the US Virgin Islands.

Workers' Comp with Gusto

I am a partner with Gusto, because of the great services and compliance as well as continuing training that keeps I'm the Bookkeeper up-to-date with all the latest changes in law and compliance issues. Gusto offers pay-as-you-go workers’ comp through their partnership with AP Intego. The premium is automatically calculated based on the actual amount of payroll each pay period, which means no estimates, no hefty upfront payments, and accurate deductions.

And with direct communication with the insurance carrier, this model also helps minimize or potentially eliminate the pain of expensive audits altogether.

As your bookkeeper, should you decide to have I'm the Bookkeeper handle your payroll for you as a stand alone service, you should feel confident to know that I have partnered with Gusto Payroll.  

US News has rated Gusto a 4.3 in their Best Payroll Software of 2022 list and report that "more than 100,000 businesses across the country use Gusto to run payroll and administer benefits". 

Yes, with Gusto we can offer your employees benefits, with the current state of the country and difficulty retaining good employees - this is a valuable resource! 

If you would rather administer your own payroll and are currently shopping or considering a change, I recommend Gusto. Check it out and sign up using my link if you want to manage your own payroll account and you'll automatically be added to my client list. 

https://gusto.com:/partners/invite/i-m-the-bookkeeper-7756161242744851

Even if you decide not to retain my services for your payroll, I still recommend Gusto, and if you sign up using THIS DIFFERENT LINK and run your first paid payroll, you’ll receive a $100 Visa gift card! 

 https://gusto.com/r/victoria0ab2