If the IRS is investigating your business or investigating you as a worker with regard to worker classification issues, you are urged to contact an experienced tax law attorney with in-depth knowledge and a favorable track record in tax law matters. Brown, PC, headquartered in Fort Worth, Texas, serves clients nationwide in a wide range of tax law matters. Our employment tax attorneys are ready to advise you on questions regarding tax classification.
Note: Employers who are uncertain about a worker’s classification can ask for an IRS determination by filing form SS-8, “Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” However, some tax specialists have cautioned that when status of a worker is not complete, the IRS generally classifies the worker as an employee. Furthermore, employers who request this IRS determination lost certain protections against liability for misclassification.
The following 20 factors are the substance of the IRS-designed “20-Factor Test” intended to help employers and others determine the classification of workers. Contact Brown, PC, if your company needs representation related to worker classification:
Level of instruction: When a company tells a worker where, when and how to perform duties, this may indicate an employment relationship.
Amount of training: Companies that ask workers to undergo company-provided training may be establishing an employment relationship.
A Degree of business integration: When workers’ services are integrated into business operations or determine the business’s success, the workers are likely to be considered employees.
The Extent of personal services: When companies insist that a certain person should do a certain job, rather than letting the workers freely choose who does what, then an employment relationship may exist.
Control of assistants: An employment relationship may be in place if a company hires, supervises and pays a worker’s assistants.
Continuity of relationship: A continuous relationship between one company and one worker may indicate an employment relationship.
The Flexibility of schedule: When a company determines hours and days of work, an employment relationship is apt to be the case.
Demands for full-time work: A full-time work schedule may indicate an employment relationship.
Need for on-site services: Requiring a worker to complete work on company premises, even though that work could be done elsewhere, may be a sign of an employment relationship.
A Sequence of work: When a company requires work to be done in a certain order, an employment relationship may exist.
Requirements for reports: When a company asks workers to submit written reports about work performed, this may indicate an employment relationship.
Method of payment: Payment by the hour, week or month rather than by the project tends to indicate an employment relationship.
Payment of business or travel expenses: Direct payment of travel expenses is characteristic of employment.
Provision of tools and materials: When a company provides tools and materials needed to complete work, an employment relationship is suggested.
Investment in facilities: Whether a company provides work facilities or a worker invests in his or her own work facilities may be an indicator of employment versus a contractor relationship.
Realization of profit or loss: When workers earn preset amounts rather than having a chance at realizing profit or loss through work, employment is usually indicated.
Work for multiple companies: A contractor relationship is usually indicated when a worker is simultaneously working for several companies.
Availability to the public: When a worker’s services are available to the general public, this tends to indicate a contractor relationship.
Control over discharge: If a company has unilateral right to discharge a worker, as opposed to contract terms determining when a relationship ends, this tends to indicate employment.
A Right of termination: Employees can terminate work without liability, whereas contractors cannot without violating terms of their contract.
Is Your Company Facing a Tax Audit? Are Your Contractors Actually Employees?
Your company may face huge back-tax liabilities if an IRS tax audit finds that your contract workers should have been classified as employees. When the stakes are high, choose a highly qualified tax attorney to represent you. Lawrence Brown’s clients benefit from his insights gained as a former trial lawyer for the Department of Justice Tax Division and his more than 20 years of experience. To strengthen your case, he may wish to assemble a team of tax experts such as CPAs, auditors and former IRS agents to help Brown, PC, aggressively counter the IRS in your tax audit situation.
Brown, PC, serves individuals and businesses in the Dallas-Ft. Worth Metroplex, statewide in Texas, and nationwide. Contact Lawrence Brown at 888-870-0025 to arrange a confidential consultation about the 20 factors for worker classification and their relevance to an IRS audit or appeal regarding how your company’s workers should be classified.