Waynes World - July 2010
ALL SORTS OF NEW TAX & REGULATION BURDENS
COMING OUR WAY, INCLUDING...
IRS LAUNCHES NATIONWIDE
AUDIT CAMPAIGN
by Wayne Schooling
IRS AUDITS. Have you ever wondered how the government is going to pay for all of its spending? Well, the IRS has launched a nationwide employee misclassification audit campaign to find employers who are misclassifying employees as independent contractors, thus closing the so-called “tax gap” when employers misclassify contractors to avoid paying employment taxes to Uncle Sam. The IRS has begun a national audit of 6,000 businesses over the next three years, under its National Research Program. The IRS says its audit targets will be selected at random. The audits will cover five basic employment tax-related issues including: 1) worker misclassification; 2) fringe benefits; 3) non-filers; 4) officers’ compensation; and 5) employee expense reimbursements.
HERE COMES EMPA. As if you didn’t have enough to worry about between all the new safety regulations and CSA 2010, well now get ready for EMPA. This, basically, is a plan aimed at taking your independence away! The Employee Misclassification Prevention Act (EMPA) of 2010 amends the federal Fair Labor Standards Act (FLSA) to increase government enforcement against employee misclassification practices by employers of all sizes, to curtail and penalize against worker misclassification. EMPA sets strict notice and record-keeping requirements on all employers, with fines for non-compliance (up to $5,000 per worker). It requires all states to develop and enforce their own employee misclassification enforcement programs through audits and other methods. On April 22, 2010, US Sen. Sherrod Brown (D-OH) introduced EMPA (S. 3254, H.R. 5107) in both the Democratic-controlled House and Senate. According to a study by Ohio’s Attorney General Rich Corday, Ohio loses at least $160 million a year from worker misclassification. The Obama Administration estimates that better record-keeping could raise $7 billion over the next ten years. In addition to imposing civil penalties for misclassification and directing the Department of Labor and state unemployment insurance agencies to perform misclassification audits, this bill would require employers to keep records concerning their classification of individuals as independent contractors and notify those individuals of their stated classification, along with information on what to do if they feel they have been incorrectly classified. Other pending legislation, like the Taxpayer Responsibility, Accountability and Consistency Act of 2009 (S. 2882), which proposes amending the tax code to make classifying workers as independent contractors more arduous, also seeks to address this issue. This is one of several bills now pending in Congress to increase federal enforcement against misclassification of employees as independent contractors. It appears likely that at least one or some combination of many of these bills will be passed by Congress shortly.
PLAN, PREVENT, PROTECT. The Dept. of Labor (DOL) is planning to put the onus on employers to demonstrate compliance with wage and hour, safety and health, and other laws overseen by the DOL. It is not clear at this time whether or when the initiative will come to pass, or what form the initiative will ultimately take. However, it is clear that the DOL is laying the groundwork for changes that may impose substantial new compliance burdens on employers. The DOL’s Spring Regulatory Agenda, released on April 26, was the first step in a new strategy to ensure the burden of compliance with labor laws is on the employer. This strategy, dubbed the “Plan, Prevent, Protect” strategy, seeks to especially target those employers that DOL believes employ a cost-benefit analysis before deciding to comply with labor laws. Specifically, “Plan, Prevent, Protect” would require employers to: 1) formulate a plan to comply with specific labor laws; 2) enhance prevention by executing the plan and then performing an analysis on its effectiveness; and 3) protect workers by making sure that employers follow through with their plan by requiring disclosure of the plan to both workers and the government. DOL sees their application in the context of independent contractor misclassification issues, driven in large part by a desire to rein in what it sees as calculated non-compliance by employers in the area of misclassifying workers as independent contractors. DOL intends to require employers to prepare a written plan for why certain workers are classified as independent contractors. Employers would have to disclose this plan to their workers. DOL plans to implement a misclassification initiative aggressively, including working with the IRS and state labor agencies, to target employers who are not classifying workers properly. Because this rule using “Plan, Prevent, Protect” has yet to be proposed, any official implementation of DOL’s initiative is likely to be at least a year in the future.
MORE BURDENS. Starting in 2011, those of you who have health insurance will be taxed on those premiums. In less than six months, your W-2 tax form will be increased to show the value of whatever health insurance you are given by your company. As if that isn’t bad enough, for those of you who don’t get the mandatory required health insurance under “Obama Care” will be required to pay penalties starting in 2014. The penalties will average about $1,000 per person in 2016.
FINAL ANALYSIS. If all of this information doesn’t convince you owner operators, also known as sole proprietors, to incorporate and take advantage of corporate law, I just don’t know what will. Like I said last month, the independent contractor of the future will be a professional driver, have a clean driving record and be incorporated. Motor carriers will trample over themselves to get to your door and offer you more money to drive for them. No matter what kind of corporation you choose (S, C or LLC), you will be ahead of the game compared to most. You could even get a group of guys together and form an LLC to keep costs down, as we did for the FedEx Ground boys! NTA can help you or your group incorporate, obtain group health benefits, and to either minimize or get out from under this quagmire of regulations. For more details, visit www.ntassoc.com or call us at (800) 805-0040. Until next month, “Drive Safe – Drive Smart!”
~ NTA is a name and organization you can trust. Not only is our website (www.ntassoc.com) an official US DOT Internet Training Site, but we are also the administrators of a Nationally Accredited Drug and Alcohol Program. If you have any questions, call me at (562) 279-0557 or send me an e-mail at wayne@ntassoc.com. Until next month, “Drive Safe – Drive Smart!”