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.

The government keeps pushing to make it mandatory and small business keeps fighting it but eventually, probably with the new administration, you will have to use the E-Verify system to verify in a national database that your workers are all legal. (Social Security Numbers and Green cards) Federal contractors are required but will likely sue and win, for now. Expect more regulations like this in coming years, even under McCain.

What forms do you really need when you hire someone?

First, you have to have your new hire fill out the W-4. Get your form by filling out the contact on the right.  The other Federal form you have to have is the I-9. Federally speaking, these are all you are required to have and you  need to keep these on file. The W-4 determines the number of withholding allowances and filing status and must be determined by the employee. The I-9 covers you that you made a valid attempt to ensure that your hire is a legal citizen. The employee should show you 2 forms of ID, preferably their Social Security card and their picture driver’s license. Even if they don’t produce these, you as the employer need to be able to demonstrate that you made a valid effort.

States may have some kind of New Hire form that has to be filled out. This is how the States keep track of deadbeats on child support, so, it’s very good for you to follow up on knowing how to do this. If you aren’t sure for your state, use the contact form and ask us. We’ll be glad to help.