PPB March 2018

| MARCH 2018 | 73 THINK Most employment classification issues occur at the state level. When economic times are tough, workers will apply for unemployment compensation, which triggers the state unemployment office to investigate when it discovers that the business doesn’t have the worker classified as an employee. Other times, employment classification issues are triggered by workers’ compensation claims, or complaints to the state unemployment board about a work-related situation. It’s often the least expected situation that can get a business under fire for worker misclassification. While it’s quite clear what the consequences are to the business and the worker for improper classification, it isn’t always clear how a business determines if its workers are employees or independent contractors. The key issue that the IRS asks about is whether the business had “control” over the worker, but how control is determined is not always clear. To determine if a business had control, the IRS will generally consider 20 questions in making the final determination of worker classification. Keep in mind that not all these inquiries apply in every worker classification audit. Often, the IRS will use only those questions that apply based on the industry the business is operating in. Of these 20 questions, here are nine that most businesses can use to make a fairly safe and correct classification of their workers: 1 Is the worker required to comply with instructions given by the business? 2 Does the business provide the worker with training? 3 Is there a continuing relationship between the business and the worker? 4 Does the business provide set hours of work for the worker? 5 Is the worker required to have substantial hours toward the needs of the business? 6 Who furnishes the worker’s tools and materials to conduct the work? 7 Will the worker realize a profit or loss from the services provided to the business? 8 Does the worker work for more than one business at a time? 9 Does the worker receive payment by the hour, week or month? When conducting worker classification audits, these are some of the questions that are considered by the IRS and state labor agencies. Worker classification audits are evaluated on a case-by- case basis, so the degree of importance given to the answers of each of the 20 questions will vary depending on the business and its situation. Remember, too, that IRS or court case rulings on workers' status exist and set precedence in most industries. Therefore, it’s not necessarily where the business thinks their workers should be, but rather what prior case rulings dictate. Helping your clients understand the guidelines and properly classifying their workers can prevent an audit as well as save the business significant money in penalties and interest. In addition, it can keep you out of the hot seat during these challenging times when the IRS is mandating higher due diligence requirements. There is nothing better than getting it right the first time. Andrew G. Poulos, EA, ABA, ATP, is principal of Poulos Accounting & Consulting, Inc., in Atlanta, Georgia, where he works with individual and business tax clients, and represents clients before the IRS and state labor agencies. An entrepreneur and real estate investor, Poulos is an author and national speaker. He is a contributing author to Intuit’s News Central website and blog, and founding tax editor for Reviews.com and current tax editor for Consumeraffairs.com. He’s also an analyst for leading news organizations including CBS News, NBC News, Fox News, TIME , Forbes , The Wall Street Journal , U.S. News &World Report and USA Today , among others. He is the producer of the QuickBooks Ultimate Lesson Guide DVD Series and founder of Poulos Children’s Cancer Foundation, a 501(c)3 charity. Contact him at www.savvytaxguy.com. This article may not be copied, reproduced or repurposed in part or in its entirety without the written consent of the author AndrewG. Poulos and Poulos Accounting & Consulting, Inc. The key issue that the IRS asks about is whether the business had “control” over the worker, but how control is determined is not always clear.