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Written by Matthew Kaplan, Solex
Misclassifying workers is so common with employers today. Often business owners think it’s just an option they get to choose. Unfortunately, this is very wrong. Misclassifying workers as independent contractors instead of employees not only incorrectly taxes their payments for worked performed but can also exclude them from benefits they should be entitled to. When caught, this mistake can become very costly to the business. When properly determining whether a worker should be classified as a W2 employee or a 1099 independent contractor, employers must follow federal guidelines and be aware of state-specific laws, which may impose stricter testing criteria.
At the federal level, the IRS uses a three-factor test based on:
The Department of Labor uses similar economic realty tests, focusing on:
Whether the worker is economically dependent on the employer?
If the employer exercises significant control
Some states apply their own state specific rules. California, Massachusetts and New Jersey use the ABC test as follows:
A: Is the worker free from control and direction?
B: Does the worker perform work outside the usual course of the company’s business?
C: Is the worker customarily engaged in an independent trade or business whose services are provided to other companies?
Failure to meet these conditions typically requires classification as a W2 employee
Solex is a full Human Capital Management (HCM) and Human Resources (HRC) consulting firm. Solex HCM works with clients to assist them with payroll processing, tax preparation and filing, and all other areas of workforce management. Solex HRC works with employers on a fractional basis to assist them in all areas of human resource management. Solex was founded in 1998 and assists companies across the United States.
1031 Exchange
Selling investment or business property requires you to pay taxes on the profit from the sale. But, did you know that if you wish to reinvest, it is possible to defer paying the tax and use the entire amount of equity from the exchange to acquire substantially more replacement property?
Business Banking
Running a small business and juggling all the tasks that come with it, isn’t easy. That’s why, business owners turn to Northern Bank for the simple solutions they need.
Business Banking
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