Independent Contractor or Employee… Do you know the difference?
Employee misclassification is a problem that hurts everyone! It happens when an employer hires a worker and erroneously classifies that person as an “independent contractor” instead of an “employee”. Often times, employers that make this misclassification think that they can simply issue an “IRS Form 1099” instead of a “W-2”, refer to a person as an independent contractor; yet treat this person like an employee. The difference between the two comes down to the “right to control”. Michigan courts have developed a very specific test with several factors to determine Contractor v. Employee status.
Employers that make this mistake avoid paying income taxes, FICA taxes, unemployment taxes and workers’ compensation premiums. At the same time, workers lose many protections afforded to them such as unemployment compensation, access to labor law protections and employer-based benefits. Sounds good for the employer, right? Classify them as independent contractors and avoid taxes? STOP THERE! Do NOT take a chance. The Michigan Unemployment Insurance Agency has cracked down! Field auditors are using information furnished by the IRS to find employee misclassification and recoup unpaid taxes.
Harsh penalties can result if this common mistake is discovered. An employer will be required to pay the mandatory unemployment taxes; become a “liable” employer immediately and be scheduled for future audits.
Do NOT let this happen to you! Contact C&G Solutions to learn more today!
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