Classification Audit Reviews—Forget About It!

That’s what most small businesses think when you mention the subject. Today, get out your checkbook and start writing them to the local Department of Labor workers’ compensation fund. This could be the Washington State Department of Labor and Industries AND the Federal Department of Labor if you have been reading articles in the Puget Sound Business Journal and Wall Street Journal lately. Scary stuff.

Classifying Bookkeepers and Accountings

The most thought bookkeepers, accountants, and payroll companies give to reviewing your classifications assigned to your business is: none. That is your responsibility by State and Federal law. You tell the accounting folks who worked, how many hours, and how much to pay, and they send in the quarterly report. Not that simple anymore.

Boutique for Small Business—WC Reporting

Classification audit reviews are becoming the vogue for small business to keep solvent. Now, they have to be reviewed every year to keep up with the changes in the reporting requirements. The assessed amounts by the government can put you instantly out of business. Most small businesses learn by word-of-mouth how to keep the books. Unfortunately, bookkeepers and accountants are not trained on employer workers’ compliance issues; only employee HR (human resource) state and federal compliance issues.

Case in point: Employers and independent contractors from all industries send time records for quarterly workers compensation reports never knowing if they are in compliance. Recently, the fifth largest payroll company in America was asking what the difference between employer and employee compliance reporting was. They did not have a clue.

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.

Redefinition of Independent Contractors

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 Six-Part Test under RCW 51.08.195 and RCW 51.08.181(for building trades).

When I was working for the Department, if a building trade’s person was licensed and bonded, he was independent. Not true today. The worst part is when a contractor 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.

Bookkeeper or boots-on-the-ground premium auditor?

As a certified fraud examiner and ex-contractor, there is very little difference by the time tax season comes around for saving disposable income to the independent contractor. I am sure this is true with the unscrupulous employer; but for the uninformed honest small business, they do not have anywhere to turn to find expert advice to conduct an annual classification audit review.  Most building associations do not have a true ‘audit department’. And most accounting firms just hand over the past history to the auditors not thinking about any compliance issues involved.

That 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 will stay in business much longer.

For more information, contact Ted Carlson at Liberty Bay Consultants, LLC—a Certified Fraud Examiner specializing in workers compensation compliance reporting and audit representations!

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Small Business Tax Compliance

SMALL BUSINESS TAX COMPLIANCE—WHAT EMPLOYERS NEEDS TO KNOW!

All quarterly taxes are not the same. If you are paying bookkeeping and accounting professional fees to file quarterly taxes, STOP!!

If you are one of the small companies that hate to file quarterly taxes, TALK TO US!! We have helped small businesses since 2009 all over America and Canada.

You need to make your life easier by using our proven free compliance programs.

HERE IS WHAT YOU GET:

Automatic self-auditing compliance programs using our proven programs:

  • EMPC—employee risk classifications calculations and gender counts
  • CONC—1099s for subcontractors
    PRJC—prevailing wage program for Certified Payrolls

All quarterly taxes calculated accurately for all 50 States:

  • Workers Compensation insurance premiums for each assigned risk classification
  • Unemployment Insurance for any State with Reciprocity deductions
  • Temporary Disability Insurance
  • Benefit fund calculations
  • 941s/940s
  • Body and gender counts per State reporting requirements
  • Independent contractor compliance reporting

No more predatory statute audits by insurance companies of States

Putting It All Together for the Independent Contractors

Putting It All Together for the Independent Contractor Where is there a database that a small IC can go so he can be in compliance anywhere in America. Scott Grandys has done a great job with Relevant Business Solutions for the big boys. But you still need to have this quantitative information trickle down to the operator of a small concern to make sure he is reporting correctly. There are expensive construction and transportation programs out there that do ‘everything’ . But all you need to answer is: Is the independent contractor going to be my employee? Has he done the paperwork to protect the hiring authority, or does some sort of monitoring becomes necessary? This regulatory gap can be costly–especially since the DOL is hovering with its 16,000 IRS agents. Audits are time consuming and costly. HR and accounting departments are not regulatory compliance orientated. How about having annual checkups by a compliance auditor who does not have an accounting background? I am not talking about the statutory auditors from the insurance company. They have their own agenda.

New Posts Starting in August Will Be a Little Different…..

As you can tell from the change in  the title, we took a step back and found our specialty payroll and reporting programs work better than anyone else’s. Why? Because they are ‘stripped down’ without all that HR stuff that is harder to keep than a bookkeeper tearing their hair out.

We spent the last year or so playing nice and offering our services to the big boys using our integration skills. When CompuPay and Intuit found out we could get inside their programs, they sort of panicked. So we decided to go after their Mickey Mouse API add ons and bring our specialty Employee, Contractor, and Prevailing Wage accounting program to the small businesses–including small bookkeeping firms.

Just think–small employers enter hours or contact amounts, and all their reports are accurately calculated using running totals. The bookkeepers look at the data on line and see all their reporting is done automatically. What is even better, the insurance companies now have to prove the workers’ comp data is not accurate–not the other way around. A box plant in CA has to ‘repay’ 1/3 off their premiums because they could not prove the assigned risk  classifications were accurate. Ouch!

Time saver? You bet. The employer has taken back control of his insurance costs and the time to complete the quarterly reports–all of them! . In fact, we provide a library of information for Reciprocity anywhere in America. Did you know some States do not require workers’ compensation policies for one reason or another?

How about personal income tax Reciprocity? Ever heard of that?  Under what circumstances does an employer working in other States have to buy? What State  can he pay double by Statute? How does the DOL feel about all this? Why can’t the CPAs et al write a program like ours that talks to the different reports? More audits are triggered between WC insurance reports and unemployment insurance filings.

Until August, check our our other sites and buy our programs! Crowd funding is becoming an option for Version 3.0 where we can have PDAs and permissions.

 

 

What Happens When the Auditor is Not Trained on Special Industry Reporting?

Risk classification assignments have been modified in the courts to produce special classification usage to reduce premiums. They require more work on the record keeping side  to take advantage of these reporting guidelines.

LOGGING

A simple example is statute modifications for the logging industry. If a log truck driver stays in the cab and never gets out to set chokers or measure his load at the scale station, he has an exemption from the governing classification.

SHEETROCK/WALLBOARD

Sheet rock or wallboard industry has forms to capture the hours and square footage installed. When records are not kept, delivered product material is used footage is used to calculate daily installation. Next, this industry is a two stage risk classification: one for the install and the other is for finishing which is called texturing.

When you have teams handling the same wallboard sheet, the accountability for payroll and piecework requirements gets a little complicated. So, hours and square footage is required.

Next, what about the owner working along side the hourly workers? This practice is used to same labor and premiums, but if not recorded for such ‘owner deductions’ he will pay premiums on himself.

 DIVING UNDERWATER

Jurisdictional disputes arise from a history of court cases and union turf wars. In the open sea, you have the Jones Act; near a shoreline or dock you have the Longshoremen’s and Harbor Workers Compensation Act of 1927; and at the Stage level you have the local workers’ compensation jurisdiction. Then you add the depth gauge: 50 feet, 100 feet, etc. This jurisdictional maze is really fun to program for paying wages and premiums.

PAINTERS

The two classifications for painters is INSIDE and OUTSIDE. Obviously painting the outside of building is more risky. House painters get hammered because they do not keep track of the hours for both.

HEATING VENTILATION AIR CONDITIONING

Some classifications are tricky. People that work for such companies have two classifications for the salesmen: one for inside sales in a showroom, and one for the roving employee that looks at furnaces in homes and commercial buildings. The outside salesperson has to be reported in the actual worker risk class because he is a hands on guy using tools to examine the units.

ELECTRICIANS—Regular and Small Voltage

There are several classifications: apprentice, electrician, journeyman, and low voltage. I won’t go into the rules of how to report them, but this industry follows the union guidelines.

Summary

These are just a few of the twenty or so special reporting industries. Contact us more if you are in another one to see the current changes for 2014. Each State is a little different.

OREGON —The Transit Tax State

Oregon is a payroll state but has its own particularities. In addition to buying a workers’ compensation policy, there is an add-on tax called WCF or Workers’ Benefit Fund. That tax is added to your payroll dollars. The good news is the taxation is similar to Washington State where sick and vacation hours used are counted, but not counted if paid out in severance. (Don’t get me started on what California does.)

As for unemployment insurance, sick, and bonus pay are not taxed. Nice. But not for long. Policy holders pay less UI tax than self-insured firms. Because of the State payroll tax, there is a Special Payroll Tax that keeps track of the FUTA amount and is deducted from the IRS income tax for employees.

For the folks that live near any city, you get to pay a transit tax. One for the TiMet area and one for the Lane Transit Tax.

If you are in independent contractor working for someone else, someone is going to pay for a workers’ compensation policy. They are rather strict about that. Watch out.

What really grips me is the WCF or Workers’ Benefit Fund. Those working are paying a tax on themselves for others sitting on their backside and collecting unemployment, rehab, or some sort of training. I think the employer should pay for this. Sorry. Doesn’t make sense but it is Oregon.

As for Reciprocity, it is user friendly because of the Vancouver and Longview cities. For the most part, someone working out of State can pay in either if they keep good records.

What Do Schedulers Have to Do With Workers’ Compensation?

I find it interesting that no one is monitoring the TIME that schedulers spend monitoring and getting people to their jobs. Add to the situation that no one is monitoring the workers’ compensation insurance company, and you have a recipe for fraud. Should not there be a simple program to monitor all of these TIME wasting activities?

There will be soon. How about a $5 program that monitors the correct time folks show up for work, record their risk classification, and spits out a payroll check. Sounds just like what you have, right? Not really. Right now this is done by the Intuits, Peachtrees, HR, and insurance companies that employers have to take as gospel. No checks and balances as they say.

You can pay a starting fee in addition to your regular payroll program. Intuit starts around $150 a year for three employees. Peachtree can charge upwards of $1000 for their workers’ comp add-on. We start out at $60 a year just like they do. But you not only get the EMC employee module, you get the CONC contractor and PRJC Project modules, too.

A landscaper in Washington does prevailing wage jobs and pays a payroll company over $500 a month to do this work. Not only did the payroll company not pay his $8000 premiums assessment for lousy recored keeping, it did not keep track of non-prevailing wage jobs. The landscaper got re-audited by the certified payroll department and paid another $6000.

How do you stop this feeding frenzy? Use a program that calculates all workers’ compensation, unemployment insurance, benefit funds, and created paychecks that can be used for IRS reporting.

I did forget to tell you the reports count workers and independent contractors by gender, days and weeks including their risk classifications, and looks at reciprocity in other States. Does your Add-on program do that? If not, contact us real soon for a DEMO at Attestation Software.

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