IRS Cracks Down on Contractors! Protection using a Construction CRM Software
May 1, 2014 | By itadmin |
As anyone who works in construction knows, not every company classifies salespeople, canvassers, project managers, and other workers correctly. Face it, no one wants to pay more taxes than they have to and many independent contractors enjoy the benefits of being able to write off expenses such as cell phones, mileage, and home offices. For years, it has been commonplace for contractors to pay salespeople, canvassers and project managers as “independent contractors, but now the IRS, state governments and the department of labor are cracking down hard on employers who aren’t following the rules.
With an increasing number of contractors being fined steep penalties it is more important than ever to understand the difference between an employee and a legitimate independent contractor. Recently the Department of Labor fined three construction companies more than $100,000 in addition to ordering them to pay back wages to almost 100 employees totaling nearly $500,000.
Despite all the confusion and the complexity of the law, there are some very concrete differences between W-2 employees and 1099 contractors that you can use to make sure everyone who works for you is classified appropriately and your company is protected.
According to the IRS, the primary difference between an employee and an independent contractor comes down to who is in control. To make that determination, they look at three kinds of “evidence” that you might not be aware of, including:
Behavioral Control– If a worker must follow specific behaviors that you outline while on the job site, they have to be classified as an employee.
- They don’t decide what time to start and end the work day, when they take their lunch break, or how many hours they will work each day
- They are required to wear uniforms while on the job site
- They attend training at your expense or are provided instruction on to perform jobs or processes in specific ways
Financial Control– If a worker has no financial stake in the project other than standard salary or pay, they have to be classified as an employee.
- They have no financial investment in the project
- They incur no un-reimbursed expenses
- They have no profit and loss exposure
Relationships of the Parties– If the worker receives employee benefits, they have to be classified as an employee.
- They receive vacation or sick time off
- They are provided with health insurance or a pension plan
- They do not have a contract explicitly outlining that they are an independent contractor or the terms of an independent contractor agreement are not being followed.
With the IRS and DOL cracking down on construction companies, it’s worth taking the time to make sure you are protected. Keeping documents stored correctly in a construction CRM software is key. There will always be situations where it isn’t easy to determine which classification is appropriate. To be safe, you should discuss any questionable situations with your accountant to ensure you won’t end up with a misclassification mess on your hands.
Keep All Documents For IRS and DOL Audits in a Construction CRM Software
- Keeping all documents related to work-mans comp insurance on crews, labor contracts on independent sales staff and crews is vital to have on hand and available. By utilizing the MaxCon construction CRM software you will be able to keep all necessary documents stored in a safe easy to reach location. Being prepared is key to get past any audit with a least amount of exposure possible.