Vision Payroll

This week’s question comes from Brian. We need more help in our business. We’re not sure if the person who’ll provide us services should be considered an employee. How do I know if someone is an employee or independent contractor? Answer: In Summertime Tax Tip 2009-20, the Internal Revenue Service (IRS) listed ten items a business should consider when deciding whether an individual is an employee or independent contractor. They are:

1. Three characteristics are used by the IRS to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type of Relationship.
2. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
3. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
4. The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
5. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
6. If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.
7. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
8. Workers can avoid higher tax bills and lost benefits if they know their proper status.
9. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding – with the IRS.
10. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM).

Contact Vision Payroll if you need further information.

According to the US Department of Labor, in the week ending August 15, the advance figure for seasonally adjusted initial claims was 576,000, an increase of 15,000 from the previous week’s revised figure of 561,000. The 4-week moving average was 570,000, an increase of 4,250 from the previous week’s revised average of 565,750.

The advance seasonally adjusted insured unemployment rate was 4.7% for the week ending August 8, unchanged from the prior week’s unrevised rate of 4.7%.

The advance number for seasonally adjusted insured unemployment during the week ending Aug. 8 was 6,241,000, an increase of 2,000 from the preceding week’s revised level of 6,239,000. The 4-week moving average was 6,266,000, a decrease of 2,500 from the preceding week’s revised average of 6,268,500.

The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.565 million.

In IR-2009-73, the Internal Revenue Service (IRS) announced that interest rates for the fourth quarter of 2009 would remain unchanged from the third quarter. The rates are as follows:

• Four (4) percent for overpayments [three (3) percent in the case of a corporation];
• Four (4) percent for underpayments;
• Six (6) percent for large corporate underpayments; and
• One and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

The IRS will publish the rates in Revenue Ruling 2009-27. Contact Vision Payroll if you have any questions on the fourth quarter rates.

Due to severe storms, flooding and straight-line winds in Kentucky on August 4, 2009, President Barack Obama declared Jefferson County a federal disaster area. Therefore, the Internal Revenue Service (IRS) announced recently that it will waive failure to deposit penalties for employment and excise taxes due after August 3, 2009 and before August 20, 2009 as long as the deposits were made by August 19, 2009. In addition, affected taxpayers will have until October 5, 2009 to file most tax returns. Contact Vision Payroll if you were affected by the severe storms, flooding and straight-line winds and need further information on the relief provided by the IRS.

According to the California Employment Development Department (EDD), employers in the county of Santa Cruz directly affected by the damage resulting from the fire may request up to a 60-day extension of time from EDD to file their State payroll reports and/or deposit State payroll taxes without penalty or interest. The written request for extension must be received within 60 days from the original delinquent date of the payment or return to file/pay. Contact Vision Payroll if you’ve been affected and need to file the extension request.

The US Department of Labor (DOL) recently issued Administrator signed Opinion Letter FLSA2009-19. Although Opinion Letters only apply to the exact set of facts and circumstances presented in each case, they are a valuable aid in understanding current interpretations of the Fair Labor Standards Act (FLSA).

In this Opinion Letter, the DOL concluded that fire protection employees of a Transportation Authority, “a public benefit corporation created by, and organized under, state law”, qualified as employees in fire protection activities. As such, the FLSA provides a partial overtime pay exemption. Fire protection employees have a “maximum hour standard” that must be met before overtime is required. The standard runs from fifty-three hours in a seven-day work period to 212 hours in a twenty-eight day period.

Furthermore, buybacks of vacation time may be excluded from the regular rate of pay when calculating overtime pay, but stipends for quarterly perfect attendance must be included in the regular rate of pay.

State laws may provide rules that are more beneficial to the employee and must be followed. Contact Vision Payroll if you have questions about this Opinion Letter.

In Private Letter Ruling 200930029, the Internal Revenue Service (IRS) ruled that a taxpayer’s expense reimbursement arrangement (the Plan) satisfied the accountable plan requirements of §62(c). The taxpayer in question expanded its business to include a new division that sells professional tools and equipment and repairs and maintains the tools. The technicians who repair the tools “are required to provide and maintain their own tools and equipment for performing the repair and maintenance work.” Under Regulations §1.62-2(c)(1), payments under a reimbursable plan are not taxable if the plan “meets the requirements of business connection, substantiation, and returning amounts in excess of substantiated expenses.” Since the taxpayer’s plan meets these requirements, “all payments made under the Plan in accordance with the terms of the Plan will be excluded from the Technician’s income and will not be wages subject to the withholding and payment of employment taxes.” Contact Vision Payroll if you have any further questions on accountable plans.

This weeks question comes from Barry, a business owner. We have always provided several employees with company cars. Now we plan to reimburse them for business use of their personal cars. How much can we reimburse employees for automobile expenses? Answer: As announced by the Internal Revenue Service (IRS)  in IR-2008-131, the mileage rate for 2009 is 55 cents per mile. Therefore, if employees account for their business miles to their employers, the employers may reimburse at a rate up to 55 cents per mile without any requirement for the employees to include the reimbursement in taxable income. Contact Vision Payroll if you have any further questions.

According to the US Department of Labor, in the week ending August 8, the advance figure for seasonally adjusted initial claims was 558,000, an increase of 4,000 from the previous week’s revised figure of 554,000. The 4-week moving average was 565,000, an increase of 8,500 from the previous week’s revised average of 556,500.

The advance seasonally adjusted insured unemployment rate was 4.7% for the week ending August 1, a decrease of 0.1 percentage points from the prior week’s revised rate of 4.8%.

The advance number for seasonally adjusted insured unemployment during the week ending August 1 was 6,202,000, a decrease of 141,000 from the preceding week’s revised level of 6,343,000. The 4-week moving average was 6,259,250, a decrease of 27,750 from the preceding week’s revised average of 6,287,000.

The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.548 million.

Although there are no federal or state laws that require an employer to pay for vacation or sick time, many employers offer these benefits as an additional enticement for employees. Employers need to consider whether they should maintain a traditional paid vacation/sick program or a paid time-off (PTO) program.

The traditional program maintains separate “banks” for vacation and sick time and generally has different policies for vacation time and for sick time regarding usage, carryover, vesting, etc.

The PTO plan lumps all time together and doesn’t differentiate as to why the employee is taking the time.

There are benefits and drawbacks to both and state laws can impact programs in areas such as vesting. Employers should carefully consider the pros and cons of each and then establish clearly defined policies in their Employer Handbooks.

To learn more be sure to read this month’s featured article by the HR pros at MyHRSupportCenter, Traditional or PTO. If you’re not yet signed up or would like a free trial of MyHRSupportCenter, contact Vision Payroll today.