Larry, payroll taxes are killing me. Now I find out that I am supposed to pay payroll taxes on the tips that my staff is receiving. A friend of mine told me to just make all of my workers independent contractors. She said that she changed her people over and it is working great. Before I switch I thought I would see what you thought. Valerie
Valerie, I hope this finds you well. You recently emailed me asking about switching your people to becoming 1099’s or independent contractor as apposed to employees. I concur with you that this would be great if you could avoid paying payroll taxes and fringe benefits on all the people that work there, unfortunately this is not legal.
I know that you can find several salons in California that do this. Unfortunately, we are seeing a lot of activity now, not only with the IRS looking at the status of individuals but also the EED coming in. I personally have one new client that we just started working with that had the EED come in and they had to write a check for $30,000 in penalties. We are still working on that case to see if we can get those penalties reduced. I also have talked to other salons that have the same problem. It seems like the State of California, in their effort to find money, is looking under every rock and this is a rock where they can easily find money. You don’t want to go there.
In addition to this, the IRS is looking at independent contractors. If you would go to www.IRS.gov and key in Form SS-8 you would find a form that gives you an idea of what the IRS looks at when they are determining whether a worker is an independent contractor or an employee. You can see by the twenty or so questions that if you have any control of the individuals at all, then they are probably your employees. As we say out here in the Mid-West, “if it walks like a duck and talks like a duck, it’s probably a duck.” In addition to this, the IRS has several other weapons that they are using to identify misclassified workers. One of the new items they are using is red flagging every company that has over five 1099’s greater than $25,000.
If you would like to discuss this with me, please feel free to give me a call.
It is a pleasure serving you.
Larry Kopsa CPA
I know that you can find several salons in California that do this. Unfortunately, we are seeing a lot of activity now, not only with the IRS looking at the status of individuals but also the EED coming in. I personally have one new client that we just started working with that had the EED come in and they had to write a check for $30,000 in penalties. We are still working on that case to see if we can get those penalties reduced. I also have talked to other salons that have the same problem. It seems like the State of California, in their effort to find money, is looking under every rock and this is a rock where they can easily find money. You don’t want to go there.
In addition to this, the IRS is looking at independent contractors. If you would go to www.IRS.gov and key in Form SS-8 you would find a form that gives you an idea of what the IRS looks at when they are determining whether a worker is an independent contractor or an employee. You can see by the twenty or so questions that if you have any control of the individuals at all, then they are probably your employees. As we say out here in the Mid-West, “if it walks like a duck and talks like a duck, it’s probably a duck.” In addition to this, the IRS has several other weapons that they are using to identify misclassified workers. One of the new items they are using is red flagging every company that has over five 1099’s greater than $25,000.
If you would like to discuss this with me, please feel free to give me a call.
It is a pleasure serving you.
Larry Kopsa CPA
