Is the worker going to serve your organization as an employee or independent contractor? Many existing businesses have structured independent contractor relationships based on past rules relating to the provision of tools and supplies, work scheduling and other guidelines. The state of California and the IRS are looking for new ways to increase tax exposure and collections.

Many employment situations that were previously considered by most parties to be “independent contractor” relationships have been re-classified by California and the IRS, resulting in large sums of back taxes and penalties. The attorneys at Janathan L. Allen, APC and the business advisors at Allen Barron, Inc. work to keep their clients well informed in new developments relating to California taxation authorities and the IRS.

The Misclassification of independent contractors has become a major issue for many California businesses in the past few years.

How will they identify your company for independent contractor misclassification? The first question asked in an EDD audit is usually “do you have any 1099 workers?” Separation is another trigger for agency entanglement and audits.  Professionally crafted contracts of employment can help to prevent trouble and risk and carefully manage your relationship to all workers.

When an independent contractor’s job ends and he or she applies for unemployment, California’s Employment Development department can take that as a sign, and the company that hired him or her can be in trouble if he or she is deemed to actually be an employee. The state of California is currently auditing many companies, reclassifying former contractors as employees and charging employers for the contractor’s back income tax and other taxes, plus penalties for a four year look back period. This in turn can lead to the federal government entering the picture and collecting on Medicare and other obligations.

As with other tax and employment matters, poor planning now can lead to a world of trouble later. The business and tax attorneys of Janathan L. Allen, APC can help you address problems — and prevent problems related to employee contracts. We have extensive experience with state, federal and international legal and tax matters which affect contracts of employment as well as the business work relationship.