Pub. 2018 Issue 1

9 As business owners, dealers who hire or contract with individuals to pro- vide services (such as, but not limited to, dealer trade drivers) must determine whether these individuals are employees or independent contractors. This requires an evaluation of the factors that evidence the degree of control and independence. Accordingly to the IRS, there are general common law rule categories into which such facts may fall. The first category is behavioral, that is, whether the company controls or has the right to control what and how the worker does his or her job. The second category is financial: whether the business aspects of the worker’s job are controlled by the payer. This may include items such as how the worker is paid, whether expenses are reimbursed, who provides tools/suppliers. The third common law category is the type of re- lationship that exists. That is, whether there are written contracts or employee- type benefits (for example, insurance, vacation, pension plan benefits), and whether the relationship will continue and whether the work performed is a key aspect of the business. All factors must be evaluated and weighed by businesses when determining whether a worker is an independent con- tractor or employee. Some factors which may be relevant in one scenario may not be relevant in another. Generally, the en- tire relationship must be evaluated, con- sidering the degree or extent of the right of the business to direct and control. The factors used in making the determination must be documented. Businesses that undertake and com- plete the foregoing analysis and are un- certain whether a particular worker is an employee or an independent contractor, should consult with their legal or tax ad- visors. Additionally, they have the option of filing IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and IncomeWithhold- ing. Once this form is submitted, the IRS will review the facts and officially deter- mine the worker’s status. This determina- tion can take up to six months to be made by the IRS. Once a determination as to the worker’s status is made (by the busi- ness or by the IRS), the appropriate forms must be filed and requisite corresponding taxes paid. A business that classifies an employee as an independent contractor with no rea- sonable basis for doing so may be held li- able for employment taxes for that worker. If, however, the business has a reasonable basis for not treating a worker as an em- ployee, there may be relief from having to pay employment taxes for the particular worker. To qualify for such relief, the busi- ness must file all required federal infor- mation returns on a basis consistent with treatment by the business of the worker. Under the IRS Voluntary Classifica- tion Settlement Program, taxpayers have the option to reclassify their workers as employees for future tax periods for em- ployment tax purposes with partial relief from federal employment taxes for those eligible taxpayers, subject to agreement to treat workers (or a specific group or class of workers) on a go forward basis as employ- ees. Participation in this voluntary pro- gram requires the taxpayer meet certain eligibility requirements, apply by filing the requisite IRS form (8952), and enter with the IRS into a closing agreement. Determining a worker’s proper status, employee or independent contractor, is an important requirement that dealership businesses must ensure they are doing correctly to avoid tax and related conse- quences. A dealership’s review of these worker classifications and applicable laws is significant to ensure compliance.  Julie A. Cardosi is Principal of the private firm, Law Office of Julie A. Cardosi, P.C., of Springfield, Illinois. She has practiced law for over 30 years, and represents the business interests of franchised motor vehicle dealers throughout Illinois. Formerly the first in-house staff legal counsel for the Illinois Automobile Dealers Association, she concentrates her practice in the areas of dealership compliance matters, transfers of ownership, mergers and acquisitions, franchise law, commercial real estate transfers, and other areas impacting day-to-day dealership operations. She has also served as former Illinois Assistant Attorney General and Deputy Chief of the Consumer Fraud Bureau of the Attorney General’s Office. The material discussed in this article is for general information only and is not intended as legal advice and should not be acted upon as such. Dealers should consult their own private legal counsel for application to their specific circumstances. For more information, Julie can be reached at jcardosi@ autocounsel.com, or at 217-787-9782, ext. 1 Workers as ractors withholding. On its face, the determination whether an individual is an independent contractor or employee may not always be apparent, however, it is critical that dealers make that assessment correctly. For this, they should enlist the assistance of their legal and tax advisors.