b'Construction Firms Should Get Proactive with Employee ClassificationMathew Whied, CPAN ew guidance handed down from the U.S.severely fined and penalized, including the payment of Department of Labor could drastically alter theback federal employment taxes and interest per employee. landscape of the construction industry. Now inMisclassification is incredibly easy, especially given the focus is the definition of independent contractor, withnew DOL guidance, so worker review is a must to ensure the DOL ruling that the current standard is too broad. Ascomplete compliance. If an employer needs assistance in a result, more independent contractors may actually bedetermining the classification for a worker, the employer defined as employeesmay file a Form SS-8,Determination of Worker Status for Naturally, this change will have a significant impact onPurposes of Federal Employment Tax and Income Tax employers. Independent contractors can be beneficialWithholding with the IRS.for construction firms in that contractors dont requireIf a business determines that it has misclassified employee benefits, there are no required payments foremployees, there is no reason to fearthe employer has an their payroll taxes and workers compensation, and theyoption to avoid penalties and mitigate the financial impact arent eligible for many typical workplace protections, suchon the construction firm. as overtime and minimum wage. IRS offers Voluntary Classification Settlement However, the DOL argues that more independentProgram contractors take away tax revenue from the governmentThe answer for employers is through the IRS Voluntary and create an unfair playing field for employers. As aClassification Settlement Program (VCSP). As it sounds, result, the new guidance reclassifies many independentthe VCSP is a voluntary program for employers who contractors as employees. have accidentally classified employees as independent Who is now an Employee? contractors. Through this program, construction firms can In the DOL guidance, the agency outlined the key changeschange that classification for a partial relief from federal to the definitions of employee and independent contractor.employment taxes.At the heart of the changes is the control test, the long- By agreeing to the VCSP, employers will have to define standing tool used by businesses to determine who is, andthe workers in question as employees for all future tax is not, an employee by determining the amount of controlperiods. In addition, the IRS also allows:the business has over the worker and how the worker doesPayment of 10 percent of employment tax liability the job. due on compensation from past tax year Instead of the control test, the DOL suggests thatEmployers to avoid liability for interest and penalties employers categorize all workers based on the Fair Labor Standards Act (FLSA), which defines employment as theEmployers to not be subject to an employment tax ability to suffer or permit to work. This definition isaudit related to the misclassified employeesextremely broad, and can include many workers who wereTo enter the VCSP program, employers must apply using once considered independent contractors. In fact, thethe application Form 8952 at least 60 days before the DOC is making a concerted effort to move away from thedesired change in classification date. For construction control test as the old standard.firms, this process is incredibly important. The new DOC Following this guidance, the new gauge is whetherguidance, coupled with the already narrow line between or not a worker is economically dependent from theindependent contractor and employee, could mean many employer, while falling under the suffer or permit tofirms have misclassified workersand might be facing work definition, which can include control as a factorpenalties from the IRS. A proactive approach to mitigate to consider. True independent contractors are separatethe financial impact is in everybodys best interests.businesses economically viable with or without theAll content provided in this article is for informational assistance of the employer. Employees, on the other hand,purposes only. Matters discussed in this article are subject rely on that employer for economic sustainability.to change. For up-to-date information on this subject What does this mean for construction firms? please contact a Clark Schaefer Hackett professional. Historically, construction firms have been majorClark Schaefer Hackett will not be held responsible for employers of independent contractors. With the new DOLMat is a manager working out of Clark Schaefer Hacketts guidance, many of those workers may now technicallyCincinnati office. He works with small, mid-size and large be employees, even though they are still classified as thecompanies in various industries, helping them manage their tax former.situations and assisting them with tax compliance. His experience includes developing tax planning strategies for partnerships, This puts employers in a tough fiscal and legal bind.corporations, and individuals to minimize their overall tax burdens Employers caught misclassifying employees can beand tax risk. To learn more about Mat, please visit www.cshco.com.www.mrca.orgMidwest Roofer 29'