I get calls all the time from small business owners who have all their help being paid as Independent Contractors and want to “go lejit” by putting their people on a payroll. They never bothered in the beginning because it was easier to just pay them and it saves on the employers half of the FICA taxes, on unemployment taxes, and on Work Comp insurance. I tell them what is involved to put their people on payroll. Almost without exception, I don’t hear from these people again, not because a payroll service is too expensive, but because people who take risky shortcuts in life generally don’t change. Business owners who are not interested in running their businesses within the law I’ve found don’t suddenly become interested in doing things the right way, unless they get caught. Well, they are running a very serious risk. Let me explain…All it takes for this to blow up in their face is one of the employees becomes disgruntled. And what are the odds of that? Let’s say the employee gets injured and files for Work Comp. Alarms go off! The employee is laid offl and go files for unemployment. Alarms go off! And when one Government agency sees what is going on, they will alert all the other agencies, including local, State, and the IRS. The business owner is in for Big Trouble.
The IRS recently has been cracking down on small businesses who have employees incorrectly classified as IC’s. Now cash-strapped States are getting into the act too. I’m not going to explain the difference between an employee and an I/C here, go look it up yourself on IRS.org, Pub 15.
I’ve found that people that start businesses who are determined to do things right, right from the start, are the kind of people who actually succeed and go on to build good businesses. These are the kind of people I am proud to know. The ones who think they are saving money- don’t in the long run, and the nice folks at the IRS (and now more and more States) are coming after them!
Please let me know what you think by leaving a comment below.
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Bruce,
Very sound advice and thank you for sharing. This has opened my eyes to a saying my father used to tell me: “overpay and loss a little, underpay and loss everything”. When we try to save a little, we can loss everything in trying to cut cost and avoid the IRS. we owe it to our employees and the success of our company to classify our employees correctly.
Again, thank you. I look forward to reading more of your postings.