By Alvaro Acevedo, From Brickell Law Group
I just finished a successful representation of a worker classification audit without having to take the case to court, and established a rather interesting rapport with the very decent representatives of the Florida Department of Revenue. Their team provided me with a particular tip I want to give you, which may save you from a worker classification audit. I suggest you never hire an independent contractor, ever again, without doing this. But first, let me give you a brief background.
Whenever you want someone to work for you, you typically have only two options. Either as an employee or as an independent contractor. From the perspective of the employer, it is typically more.convenient to hire independent contractors. Particularly this is because the employer saves among other things, the federal taxes for social security, Medicare, and federal unemployment. Moreover at the state level the employer saves the reemployment tax and workers compensation insurance.
However, not everyone qualifies as an independent contractor, particularly if you have control over the manner in which the worker performs his duties. For this reason the Internal Revenue Service (IRS), the Florida Department of Revenue (DOR) and the Florida Chief Financial Officer perform worker classification audits.
What these agencies try to accomplish in these audits is to reclassify your workers from independent contractors to employees. If this happens then you will be liable for the unpaid tax, penalties, and in some cases even criminal prosecution as provided by Florida Statute 443.071 which makes it a third degree felony.
It is always a good idea to do everything in your power to avoid a worker classification audit. This is because regardless of the outcome, you always lose. A competent attorney will rarely charge less than $400 per hour and if you go at it alone or with less than optimal representation, the costs are typically much higher from all the penalties, interest, and even the cost of your freedom.
So what can you do to avoid an audit? The counsel for the DOR asked me to give all my clients a tip which is very simple, fast, and FREE. But before a common disclaimer: I must say this is not a substitute for legal advice and you may follow this at your own peril, I make no guarantees and I am not your lawyer this is for informative purposes only.
The tip is this: always ask your independent contractor to obtain an individual Employer Identification Number (EIN) first. In other words, when you sign an agreement with the contractor, never take the contractor’s social security number and report the payments to it on the 1099 at the end of the year.