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Miscellaneous Ramblings on Compliance

The two new federal programs you have been hearing about are targeting employers who have misclassified their own employees and who have issued 1099s to independent contractors. They claim this misclassification is used to avoid paying payroll taxes on people who should be employees or covered workers. These programs are the Voluntary Classification Settlement Program to submit 10% of the normal payroll taxes for one year with a gratis for three years; and the new IRS 1% amnesty program for misclassifying employees. The latter may not be a good thing with the IRS probably sharing your information with other agencies according to Mike Reilly at Lane Powell in Seattle.

The State of Washington rethought the qualifications for independent contractors by reinterpreting RCW 51.08.180 Definition of Worker knowing full-well most one-person contractors are terrible record keepers. Thus, they fail the famous 6-Part Test under RCW 51.08.195 and RCW 51.08.181(for building trades). Most tradesmen use their glove box in their truck for record keeping.

When I was working for the Department of Labor and Industries, if a building trade’s person was licensed and bonded, he was independent. Not true today. The worst part is when a contactor had no idea he was an ‘unregistered employer’. The penalties are severe since most workers’ compensation funds are underfunded because pre-2005 building premiums are just not there anymore.

In April 2009, the Washington State Attorney General’s Office issued an Employer Services Overview paper declaring conditions of personal labor. It mirrors the California Labor Law stating that out of necessity or choice others were employed to do all or part of the work. In other words, an independent contractor better get a workers’ compensation account opened yesterday to remain independent.

This is my point: classification non-compliance. It can be as simple as having a salaried 20 hours a week person working part-time with no time card. If audited, that company will pay premiums on the other 20 hours plus a 20% penalty. In addition, there are insufficient records penalties equal to $1000 a year, and if the auditor has to make dollar quotas, they can add on a misrepresentation penalty up to ten times the premium amount. I kid you not.

So, do yourself a favor. Find a competent classification audit reviewer each year to keep up with the changes in federal and state compliance workers’ compensation reporting. You and your clients will stay in business much longer.

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