Pub. 4 2014 Issue 4

8 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com Recent increased federal IRS and U.S Department of Labor along with Illinois Department of Employment Services (IDES) scrutiny of businesses that classify employee workers as independent contractors has generated concern over the issue of how the determination is made that an individual is an employee, not an independent contractor. Employee Classification – Employee V. Independent Contractor M any dealers have used independent contract labor in- stead of bringing on full-time employees in a variety of areas such as security, sales, cleaning of facilities, and cleaning of new and used cars. In most instances, it may be less costly to use outside labor, since the business avoids paying payroll taxes, employee health benefits, vacation, and sick pay. Also, the amount of paperwork necessary for a full-time employee may be reduced. Internal Revenue Service In reviewing the question of how the IRS determines the status of an individual, it is helpful to consider the IRS rules, which explain some of the key differences between employees and independent contractors. If the IRS can prove that the inde- pendent contractor is really an employee of the dealership, the business will be assessed taxes and penalties that could amount to a substantial sum of money. The following guidance was developed by the IRS. The tax law covering independent contractors is very compli- cated. Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. In de- termining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered. It is critical that you, the employer, correctly determine whether the individuals providing services are employees or n Employee Classification — continued on page 11