Taxes, Gig Workers, And Your Seasonal Help

Did you hear the big employment law news out of California? The state’s businesses are facing strict new limits on using independent contractors. It’s a valuable reminder that not all workers are equal in the eyes of the government, especially those considered independent contractors versus employees.

Under a new ruling, slated to take effect January 1, California workers are only considered independent contractors if the work they do is outside the usual course of a company’s business. The law is said to be aimed at companies like Uber, Lyft, and DoorDash, who classify their drivers as independent contractors and thus avoid employment taxes and a slew of workers’ rights protections. But here’s the rub: Uber is fighting back, claiming that it’s a technology company first-and-foremost and that its drivers are only ancillary to its business.

Back home in Texas, things are different. This past spring, the Texas Workforce Commission (TWC) adopted a rule classifying workers hired for jobs through digital apps as independent contractors. The ruling came about to allow tech companies to avoid paying unemployment taxes if they can prove their workers are “marketplace contractors” who work on-demand (as Uber and Lyft drivers do).

What a difference a few state borders make.

The bottom line, however, is that employee classification is a fast-changing, confusing area of business law—especially if you hire workers across state lines. Getting it wrong can hold dire consequences with potential litigation, fines, fees, and, of course, back taxes.

It’s that time of year to ramp up hiring seasonal workers, which means it’s also a great time to brush up on how to classify part-time, temporary, and contract help in light of these changes. If you run a traditional, non-tech-centric organization, the IRS common law and three-factor tests are decent baselines for determining employee classification. The tests look at how much behavioral, financial, and relational control you have over your gig workers. There’s also an economic reality test used by the U.S. Department of Labor and the Social Security Administration, which should also be considered.

Even the IRS admits, however, “there is no ‘magic’ or set number of factors that ‘makes’ the worker an employee or an independent contractor, and no one factor stands alone in making this determination. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.”

It’s also important to recognize that state and local jurisdictions may have their own twist on IRS and other federal tests. It’s certainly the case if your business centers around an app or web-based module that helps customers “book” your workers. If it does, be ready for the added state and even local jurisdiction complexities highlighted previously.

Safe harbor rules might apply in some instances but, as TWC points out, it’s challenging to obtain and usually requires a previous IRS audit, ruling, or opinion letter for support as well as your state’s goodwill, since individual states aren’t necessarily bound by IRS safe harbor laws.

Be sure to use the help of both a CPA and a business attorney to determine—or re-evaluate—employee classifications since there is no hard-and-fast overriding definition, particularly as they apply to tech companies and on-demand workforces. For questions, feel free to contact us.

Image via 123rf.com

October 22, 2019

Client Spotlight

Nobody else wanted the difficult cases. Jason DeSouza took them anyway, and that experience shaped everything that followed….
Family business succession is one of those conversations many owners know they need to have but keep postponing….
Thinking about buying equipment or a vehicle before year-end for the tax write-off? Before you sign, here are 3 important questions you should ask….
Want to help your grandkids pay for college? Here’s what to know before you give….
If your business generates $1.5 million or more in revenue, how do you capture the tax benefits of family payroll while keeping your business fully…
If you’re setting aside money for your kids or grandkids, the new IRC Section 530A may be a tax-smart way to do it….
When two high earners say “I do,” protecting pre-marital wealth isn’t unromantic—it’s essential strategic planning….
Cryptocurrency may have gone mainstream, but tax compliance is rapidly catching up with updated IRS property classifications and Form 1099-DA broker reporting to evolving regulations….
You might be sitting on a valuable tax strategy without realizing it. Before you make any moves, keep these critical rules in mind….
Under certain circumstances, an S corp election can be great for tax savings, but it’s not always great for growth. Here’s what you should know…
As a business owner, what can you do to eliminate tax surprises? Before jumping on tax liability insurance to insure your tax bill, consider what…

Blogs and Articles

Client Spotlight: DeSouza Injury Lawyers

Nobody else wanted the difficult cases. Jason DeSouza took them anyway, and that experience shaped everything that followed....

Client Spotlight: DeSouza Injury Lawyers

Read More

Unsticking Your Family Business Succession Plan

Family business succession is one of those conversations many owners know they need to have but keep postponing....

Unsticking Your Family Business Succession Plan

Read More

A Caution About Year-End Tax Write-Off Purchases

Thinking about buying equipment or a vehicle before year-end for the tax write-off? Before you sign, here are 3 important questions you should ask....

A Caution About Year-End Tax Write-Off Purchases

Read More

Help Grandchildren with College the Tax-Savvy Way

Want to help your grandkids pay for college? Here's what to know before you give....

Help Grandchildren with College the Tax-Savvy Way

Read More

Spotting Illegal Trusts and Private Family Foundation Arrangements

Spotting Illegal Trusts and Private Family Foundation Arrangements

Read More

Family Business Payroll Tips and Traps

If your business generates $1.5 million or more in revenue, how do you capture the tax benefits of family payroll while keeping your business fully...

Family Business Payroll Tips and Traps

Read More

Is the Trump Account a Safe Bet for Gift Tax Savings?

If you're setting aside money for your kids or grandkids, the new IRC Section 530A may be a tax-smart way to do it....

Is the Trump Account a Safe Bet for Gift Tax Savings?

Read More

Protecting Dual-Income Pre-Marital Wealth

When two high earners say "I do," protecting pre-marital wealth isn't unromantic—it's essential strategic planning....

Protecting Dual-Income Pre-Marital Wealth

Read More

Crypto Tax Changes Are Coming, But What Does That Mean?

Cryptocurrency may have gone mainstream, but tax compliance is rapidly catching up with updated IRS property classifications and Form 1099-DA broker reporting to evolving regulations....

Crypto Tax Changes Are Coming, But What Does That Mean?

Read More

What Is Tax Loss Harvesting?

You might be sitting on a valuable tax strategy without realizing it. Before you make any moves, keep these critical rules in mind....

What Is Tax Loss Harvesting?

Read More

Is an S-Corp Election Still Right for Small Business Owners?

Under certain circumstances, an S corp election can be great for tax savings, but it’s not always great for growth. Here’s what you should know...

Is an S-Corp Election Still Right for Small Business Owners?

Read More

Do Businesses Need Tax Liability Insurance?

As a business owner, what can you do to eliminate tax surprises? Before jumping on tax liability insurance to insure your tax bill, consider what...

Do Businesses Need Tax Liability Insurance?

Read More

Princess Professional

From accountant to owner, and now to a successful exit! Amir Kamel proved that "everything good takes time"—including walking away on your own terms. Read...

Princess Professional

Read More

Princess Beauty Supply

After waiting 11 years for his visa, Amir Kamel's journey from Cairo to building a multi-million dollar Texas business is a true masterclass in grit,...

Princess Beauty Supply

Read More

100% Bonus Depreciation: Hits and Misses

Used wisely, 100% bonus depreciation can fuel growth and protect cash flow; used poorly, it can create unnecessary debt and future tax friction....

100% Bonus Depreciation: Hits and Misses

Read More

Now Accepting New Clients

Let’s Start the Conversation

Let’s take a look at your finances together. We offer a complimentary 1-hour call to review your past tax returns. If we see a way to help you, we will.

Want to receive tax strategies and tips direct to your inbox?

Name(Required)