8 years ago


Distributor's Link Magazine Summer Issue 2012 / VOL 35 / NO.3


26 THE DISTRIBUTOR’S LINK Bart Basi Dr. Bart A. Basi is an expert on closely-held enterprises. He is an attorney, a Certified Public Accountant, and President of The Center for Financial, Legal & Tax Planning, Inc. He is a member of the American Bar Association’s Tax Committee on Closely-Held Businesses. EMPLOYMENT LAW AND THE TRAVELS OF EMPLOYEES: WHAT TO DO ABOUT WHAT Introduction When employees are working in an office, shop, warehouse, or otherwise within your immediate supervision, the legalities of employment and tax law is clear. Employees generally must work within safety and legal guidelines, for which they earn a paycheck. On the other hand, when employees travel, whether it is running errands on an occasional basis, running errands on a daily basis, working locally, or engaging in long haul transportation, the legalities and tax rules change. There are many issues involved such as: employee vehicle usage, employer provided vehicle usage, administration and paperwork requirements, travel pay, reimbursement, frolic and detour, and abuses. As an employer you are responsible for your employees while they are on the road. It is also your responsibility to know the laws behind employee travel and how to limit your liabilities where applicable. Threshold Question: Employee or Not One of the most difficult questions for an employer to answer under the current federal tax law is “Who qualifies as an independent contractor” Yet, if an employer does not answer this question correctly, then the employer may find his/her company liable for taxes, penalties, and interest when the IRS reclassifies an independent contractor as an employee. Over the course of the last seven years, the IRS has collected million in taxes due to reclassifying over 400,000 independent contractors as employees. Therefore, it is extremely important to know the difference between an independent contractor and an employee. Unfortunately, Congress has not provided any clear legislative guidance on this issue. Because of this lack of guidance, an employer must rely on a myriad of special rules, exceptions, legislative intent, and common law tests. Obviously, reading these rules leaves a person more confused about the difference between an independent contractor and an employee than before he/she started. Since there is no clear Congressional guidance defining when a worker is to be classified as an employee, the IRS must depend upon its own regulations, revenue rulings, and letter rulings to make a determination. The IRS regulations basically ask a single key question: Does the business have “control” over the worker If “control” is present, then the worker is an employee. If “control” does not exist, then the worker may be classified as an independent contractor. An employer has control over a worker when he/she has the right to control and direct the worker’s services. This means not only does the employer have control over the results of the services, but also the details and means by which the results are accomplished. Whether or not an employer actually controls or directs the worker is irrelevant. It is the right to control the way in which the services are performed that is the key in determining the worker’s status. If an employer only controls the results of a job and not the means by which it is accomplished, then the worker is not an employee. However, if the worker only works for one employer and has no other jobs, then that employer has the ability to control the worker’s actions and the worker will be classified as an employee. please turn to page 150

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