Employee or Contractor – The DOL’s Watching
Tim Schuster gives us The Bottom Line when host Dave Plaskow recently received a NJ Department of Labor questionnaire concerning some freelance writing assignments from a couple of years ago.
Dave Plaskow: Hello and welcome to The Bottom Line. This podcast examines the everyday business and finance issues faced by closely-held and private businesses. We hope to provide you with news you can use, in what we like to think of as a jargon free zone. I’m your host Dave Plaskow, and with us today is Tim Schuster, a manager in EisnerAmper’s Private Business Services Group. Tim, good to see you.
Tim Schuster: Dave, it is a pleasure to see you as well.
DP:
So, for this particular podcast Tim, this is… I want to use a real-life example that happened to me…
TS:Sure.
DP: …because it’s… I think it’s interesting and it may apply to other people. So, prior to me starting at EisnerAmper two plus years ago, and when I left my other position, I had a month or two in there, you know, some time to kill, and I took out a couple of freelance writing assignments...
TS:Ok. Yup.
DP:…for a couple of extra bucks. So just this past week I had gotten a letter from the New Jersey Division of Labor and they were inquiring as to my time or what I had done as far as my capacity as a freelancer.
TS:Happened.
DP: So, you know, my first thought was, oh my god, a letter from the state…
TS:Always freaks everybody out.
DP: …yeah, they’re auditing my taxes, I forgot to pay taxes on the freelance income and I was envisioning myself in, you know, that bright prison orange uniform…
TS: By default you just automatically go to that negative mindset.
DP: Right, right. So I went to my, you know, my information in my file at home, found the year that I did the, you know, the freelance – and it was only I think three assignments. So thankfully I looked at the tax return and I had paid tax… or I had declared the income on my taxes so that made me feel better. So I was just wondering, you know, I mean, I think I know…
TS:Yeah.
DP: …what they were after and what they were looking into – not so much me but my classification…
TS:Yup.
DP: …under the company that I was freelancing for. But walk me through it. What’s the notice? What are they trying to do? What’s the endgame? Who does this impact? You know, clarify it.
TS:Of course, it would be my pleasure. So, by default, how you got that notice and you’re thinking to yourself, right away, you went to that “I’m going to jail”…
DP:Yeah, yeah,
TS:It’s just by default always…
DP: Should I say goodbye to my wife and kids?
TS:Yeah, you’re like guys, I’ll see you later…
DP:Yeah, yeah.
TS:You know, you’re husband’s going to jail here. The first thing that everyone should just take away from your story especially is when you get a notice, no matter what the notice is, it’s just don’t by default assume that there’s going to be a problem for you because the way that any jurisdiction, whether it’s the IRS or the state sends out notices is not in the most user friendly manner…
DP: Yeah.
TS:…and it automatically… it makes it sound like that you’re in trouble. But specifically what was occurring with your personal situation is the Department of Labor wanted to see if you should be classified as opposed to an independent contractor…
DP: Ok.
TS:…to being an employee of where you were doing your freelance work from.
DP:Right.
TS:You know, the DOL always comes in, they want to just make sure – and this actually has been going on now, I want to say, for the past few years because there’s differing classifications of what you could be deemed as as an employee versus you being deemed as a contractor.
DP:And what does it matter to the Department of Labor whether I’m classified as an independent contractor or an employee for the company?
TS:So if you’re an employee of the company the DOL wants to make sure ‘cause, you know, you’re going to be paying your payroll taxes, you’re going to be paying your state… your family leave tax, your state unemployment tax, disability taxes, you know, if you’re an employee of that company you’ll be paying all that. As an independent contractor you’re evading all those things. Now if you’re an employee of the company there are specific rules that companies need to abide by, you know, if you’re working X number of hours they have to supply you with health insurance, they have to offer you this, offer you that, fringe benefits, where if you’re a contractor you don’t get any of those benefits and the actual employer just has to pay you whatever you guys agreed to and you’re done and then you do that on your own. So a lot of companies kind of look at contracting as a way to have them save money because they don’t have to offer you all these extra benefits that employees get…
DP:Right.
TS:…where they’re just paying you say a couple of grand to do something and it’s just cheaper for them in their minds.
DP:So the DOL is looking to find those companies who are either unscrupulous…
TS:Yes.
DP: …or made a data entry error and classified someone incorrectly with no malice, but that’s what they’re trying to find.
TS:It’s a big topic, there… I mean there could be malice or not malice…
DP: Right.
TS:…depending on how a company structures themselves. But for their purposes, the DOL just wants to make sure that if you’re working for a company and really things to look for are if you’re working full time for a company, and let’s say it’s forty hours a week for a whole year, and they classify you as a contractor, it is a very difficult argument to say that you are not an employee.
DP: Right.
TS: And the idea is if you’re a contractor you don’t… you’re… they’re not your boss, you know, they’re your boss for that assignment but you’re your own boss…
DP: Right.
TS:...and you can work for different companies. So if you’re working multitude of hours throughout the course of weeks, months, it could be even years – it depends on your contract – if that is the case then the DOL can come in and definitely switch your classification. And you are correct by the way too thinking this that the company themselves are really what they’re looking at…
DP:Right.
TS: …to make sure that they classify you appropriately. Now if you’re a contractor and they need you to be an employee, that’s going to switch, so instead of you being issued a 1099 you’ll get issued a W2 form, you know, and then you’re going through… then they have to administratively do all the payroll functions…
DP:Right.
TS:…offer you benefits, you know, ‘cause you’re not going to work there if they don’t offer you those benefits – you know, health insurance, and all that good stuff.
DP:So if you’re someone who’s at a company who they’ve classified as an independent contractor but in fact you should have been classified an employee, will the Department of Labor go after the company for back taxes…
TS:They could…
DP:…enforce penalties?
TS:…Oh, they could. I mean they could go back and look at different things, the statutes are there, so, I mean, it all depends on the audit. If it’s something that like, for your example, you know, that was a one-time deal…
DP:Yeah.
TS:…you know, they could switch you over and then go after them for that information. But it’s all situational based and it depends on the cases.
DP: Yeah. I’ll tell you something that’s interesting too, is that, you know, periodically I check my LinkedIn page and see who viewed your page…
TS:Of course.
DP: …I recognized… you know I looked and I saw some names and then I saw a name on the LinkedIn page who had viewed my profile and I said why does that name sound familiar? Low and behold it was the name of the auditor on the letter that I had gotten from the Department of Labor. So, you know, they are definitely – and I’m sure the IRS is too – they are definitely looking at people’s social media in any kind of investigative situation.
TS:There is no doubt about that that they are. Always remember this – whatever you put online can be found.
DP:Yeah.
TS:So, DOL… and actually a DOL audit is a great example of where they do that, I mean I’ve heard of instances, not just for yourself, but clients that we service here in the firm where they are looking at Facebook, LinkedIn, because you’re putting that information out there for there to be.
DP:Yeah. Sure. Fair game.
TS:And… it is complete fair game. So if you’re putting in… so here’s a great example, so where you were the contractor for the three assignments, if you put on your LinkedIn that you were working there for…
DP: Which I did.
TS:…five years.
DP: Well, I didn’t do that. But I put in there that that’s was part of my experience.
TS:Yes, yes, which is perfectly…
DP:Yeah.
TS:There’s no harm no foul there.
DP: Yeah.
TS:But if you put on your LinkedIn that you worked there for five years, and they come in and say wait a second, hold on, this doesn’t make any sense…
DP:Yeah.
TS:…the company is saying you did three assignments, X, Y and Z thing and paid you as a contractor…
DP:Yeah.
TS:…but your LinkedIn says you were there for five years...
DP:Yeah.
TS: …something’s not jiving here.
DP:Right, right.
TS:And they will investigate that. I mean I’ve actually heard of instances where they’ve sent questionnaires to you, the contractor, and says “it says on your social media outlet that you worked at this X, Y and Z company for five years.
DP:Yeah, yeah.
TS:I need you to provide X, Y, Z and Q things for us to look into.
DP:Yeah, yeah.
TS: But, oh yeah, no everything…
DP: Big brother’s watching you.
TS:All the time. They all… but you’re doing the same thing too because you’re able to see who’s looking at your profile.
DP: Right, sure.
TS:But at least they can kind of gauge you for that. But just as a fore-warnment to our audiences, always know what’s on your LinkedIn.
DP:Right.
TS:You know, just be careful what you… LinkedIn, Facebook, anything online…
DP:The internet is forever.
TS: The internet is forever. You put it up there, it is completely there.
DP:Yeah. Ok. Well, thanks Tim, for making me feel a little better on this...
TS:Oh, it’s my pleasure… yeah, yeah absolutely.
DP: …and the valuable information, because if it’s happening to me it’s happening to a lot of other people.
TS:And it’s going to just increase as the years are progressing.
DP:Yeah. Right, and as states need to plug budget deficits.
TS: Oh yeah. That’s the way to do it. And it’s interesting you bring this up too. So with the new Tax Cuts and Jobs Acts, there’s instances where being an independent contractor might benefit you as a person as opposed to an employee.
DP:Yeah.
TS:That could be something we can talk about another day but this is going to come up even more now with the whole changes in the tax reform. How do you classify someone who’s working for you? Are they an employee?
DP: Yeah.
TS:Are they a contractor? You know, or is there ways for creativeness I want to say…
DP:Yeah.
TS:…to this whole thing? So, I have a feeling, as it is right now there’s an uptick, it’s going to just increase even more, especially as we go through filing seasons for the next few of years, you’re going to start seeing more and more of these audits I’m hearing.
DP:Yeah. Well thanks for the information.
TS:Well, it’s my pleasure.
DP:Thanks for listening to The Bottom Line as part of the EisnerAmper Podcast Series. If you have any questions or there’s a topic you’d like us to cover, email us at contact@eisneramper.com. And visit EisnerAmper.com for more information on this, and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.
Tim Schuster discusses executive compensation, option grants, deferred compensation, fringe benefits and more. He also examines what to be aware of when preparing an executive compensation package.
Lindsey Gross of EisnerAmper’s Outsourced Finance and Accounting Group joins Tim Schuster from Private Business Services to discuss the differences between these two areas, client case studies that demonstrate those differences, and which types of client could benefit from each.
The Bottom Line looks at how you can use social media to grow your business and examine the different communication platforms available including Facebook, Twitter and LinkedIn. You really need to develop website content and push it on social media platforms.
Tim Schuster, a manager in EisnerAmper's Private Business Services Group, discusses new NJ legislative initiatives happening in Trenton that you should be aware of. The first is the New Jersey Family Leave Act and the second is the increase in NJ's minimum wage.
In this episode of The Bottom Line, EisnerAmper Private Business Manager Tim Schuster discusses developing a quarterly planning calendar, including budget, tax planning and speaking with your trusted advisor. Review these concepts monthly from an accounting perspective.
In the wake of the government shutdown, Tim Schuster offers tips on creating an emergency fund. To avoid living paycheck to paycheck, Tim suggests putting money into a separate savings account, as well as a portion of any windfalls. Emergency funds should include medical expenses.
Tim Schuster from EisnerAmper’s Private Business Services Group talks about the family issues and financial burdens for members of the sandwich generation - those individuals who are responsible for raising their children as well as caring for aging parents.
As New Jersey initiates paid employee sick leave The Bottom Line examines the requirements for business owners. Some reasons for which employees can use sick leave include an employee's own personal medical treatment or legal services, or that of a family member.
EisnerAmper’s Private Business Services Group Manager discusses the current unemployment rate and the booming economy despite current trade tariffs. To help attract employees, businesses are offering incentives such as assisting with student loans to attract millennials.
EisnerAmper’s Private Business Services Group partner discusses estate planning and the need to have a will - from an online provider or an estate planning professional - to help your heirs understand your estate asset wishes and the Tax Cuts and Jobs Act estate tax thresholds.
The Bottom Line looks at some of the common IRS scams out there and what you should do if you fall victim to one of these scammers, including email and personal data hacks, ID theft and fraudulent returns. Contact your accountant if you think you’re a victim of a scam
The landmark Supreme Court decision in the Wayfair case on e-commerce taxation allows states to collect sales tax on e-commerce companies, even without brick and mortar locations in that state, affecting all e-commerce companies such as Amazon. Accountant guidance is suggested.
This episode of The Bottom Line looks at New Jersey Governor Phil Murphy’s inaugural NJ budget. The discussion includes the Governor's proposed New Jersey's state tax on Uber and Airbnb, addressing tax loopholes for hedge funds and New Jersey tax's effect on the gig economy.
In this episode of The Bottom Line, Tim Schuster discusses some of the individual taxation questions bubbling up from clients in the wake of tax reform including adjusted gross income changes, private business taxation, QBI, and the importance of talking with your tax advisor.
This episode of “The Bottom Line” discusses new tax reform changes including C corp and individual taxpayer changes, NOLs, double taxation and bonus depreciation. Tim Schuster came up with a top seven list of business tax reform questions he's been receiving from clients.
In this episode of “The Bottom Line,” Tim Schuster talks about the benefits of retirement savings plans for small businesses, including SEP IRAs, SIMPLE IRAs, and Solo 401(k) plans, as well as eligibility and contribution limits set for small business contributions.
Tim Schuster discusses how starting a college savings account – sooner rather than later – can help alleviate sticker shock for your child’s college education. He talks about the different state-sponsored 529 plans, what you can use the money for, the tax benefits and more.
EisnerAmper’s examines the differences between different Health Spending Accounts including HSAs, HRAs and FSAs. It is recommended you speak with your tax advisor about qualified medical expenses and pending tax reform's affect on health spending accounts.
EisnerAmper's Tim Schuster looks at several categories of SBA loans for working capital. He covers the loan approval process, SBA 504, real estate exclusions and how business advisors can help you make the most of the Small Business Administration (SBA) loan process.
EisnerAmper’s Tim Schuster tackles the issue of succession planning - Companies should have something written down for succession planning purposes as well as take into consideration estate planning, wealth management and valuation when creating their transition plan.
EisnerAmper's private business manager, Tim Schuster discusses the need for proactive disaster planning for private businesses, as well as business interruption insurance in the event that your disaster planning fails. FEMA offers online disaster planning recovery courses.
In this episode, Our private business services advisor Tim breaks down what a closely held business is, the different business formats such as LLC LLP and S Corp, and how this impacts the role of business advisors so your accountant, banker and lawyer will all be on the same page.
