Quick Printing is the resource for the Commercial printing, visual and graphic arts industries. Since 1977, Quick Printing has focused on improving efficiency and increasing sales and profits in the print shop. Industry experts share their ideas and
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Money Talk 30 Quick Printing | January 2015 MyPRINTResource.com Stuart Margolis Margolis Partners has long been recognized as the fnancial expert for family- owned businesses with a specialty in the printing, packaging and allied graphic communications industries. The frm is noted for its expertise in enabling companies to optimize profts. Proudly, it is the purveyor of the industry's Value-Added Principles of Management, and compiles the annual Printing Industries of America Ratios, the printing industry's premier fnancial benchmarking. Independent Contractor vs. Employee Status T he likelihood of your business being involved in a worker clas- sifcation or employment tax au- dit is increased because the IRS is aggressively attempting to reduce the "tax gap:" the shortfall between taxes owed and taxes paid. Existing worker classifcation rules are complex, making interpretation and application tricky. The lack of a single, defnitive test for classify- ing workers as either employees or independent contractors contributes to the confusion. In our industry, questionable situations often arise regarding outside sales people. Generally, when an analysis is done, many factors are considered. The IRS typically makes its decisions based on the whole picture, not just a single factor. Workers are more likely to be classifed as independent contrac- tors if they: § Make a signifcant investment in business property; § Pay their own business expenses; § Receive a fat fee not based on an hourly or similar rate or, in the case of sales, are paid only when they income tax withholdings. If your workers are independent contrac- tors, you are only required to report payments of $600 or more on a Form 1099-MISC (Miscellaneous Income). This leaves the independent contrac- tor to pay his or her own taxes. Unless there is a reasonable basis for treating your employees as inde- pendent contractors, failing to with- hold income and employment taxes from their wages can result in severe penalties and interest, in addition to the back taxes owed. Of course, pen- alties for intentional worker misclas- sifcations are harsher than they are for inadvertent mistakes. In addition, your beneft plan also may be in jeopardy if eligible employees have been misclassifed as independent contractors. If they have been excluded from plan par- ticipation, retirement plans may lose tax-favored status. The problem is compounded when excluded employ- ees seek restitution for lost benefts. The IRS offers an amnesty program to eligible employers that have misclassifed workers. This program, called the Voluntary Classifcation Settlement Program (VCSP), allows employers that are currently treat- ing their workers as independent contractors or other nonemployees to prospectively treat the workers as employees, at a cost that is 10 percent of what would normally be owed in a worker misclassifcation situation. In addition, a safe har- bor rule known as "Section 530" provides relief from employment tax obligations with regard to workers, even though those workers may be common-law employees, if certain requirements are met. Since the potential liability could be considerable, it is benefcial to verify that your workers are properly classifed. If misclassifcations are discovered, exposure can be min- imized through use of Section 530 relief or the VCSP. Are you prepared if the IRS knocks on your door this year? Don't be held liable if your employees are misclassifed. By Stuart Margolis produce (not paid a minimum or base salary); § Are not prohibited from doing work for other companies; § Can pay subcontractors; § Are not performing services as an integral part of regular business; § Have a contract with an enforceable liquidated damages provision; § Can make a proft; § Can suffer a loss. Workers are more likely to be clas- sifed as employees if they: § Are given specifc instructions and ongoing training in how to get the work done and report in for frequent or regular meetings; § Cannot work for others; § Have expenses paid by company; § Are paid with a salary or hourly wage; § Do not have a signifcant invest- ment in their trade or business; § Are an integral part of business; § Receive direct reimbursement for all, or almost all, expenses; Other factors are: § Whether or not the work is per- formed on the business's premises; § Whether the worker has fexibility in setting hours; § Whether the relationship is tempo- rary or short-term; § Whether the work is full-or part- time; § Whether the worker performs ser- vices for one or more businesses. Understanding the difference between an employee and an inde- pendent contractor is very import- ant. If you are an employer, you are required to withhold and contribute a matching amount of FICA and Medicare taxes from your employee's income, along with the employee's