Tag Archives: IRS

Does Your Company Classify Workers As Independent Contractors?

Does your company classify workers as independent contractors? In 2017, companies need to realize that such classifications are becoming fraught with financial peril. Given stricter IRS enforcement of independent contractor standards in regards to employment taxes combined with the ongoing requirements of the Affordable Care Act, misclassification has become hazardous to your company’s bottom line. As a professional employer organization, Total HR Management has a proven track record of making sure our client companies avoid the financial and regulatory hazards of worker misclassification.

Do You Classify Workers as Independent Contractors?

classify workers as independent contractors

Classify Workers As Independent Contractors?

Beyond IRS enforcement and Affordable Care Act requirements, there are many other reasons not to classify workers as independent contractors. For example, avoiding potential problems with the Department of Homeland Security is a major motivating factor. The Department of Homeland Security has become much more vigilant when it comes to the completion of I-9 Employment Eligibility Verification forms. Every employer is required to complete and retain a Form I-9 for every employee hired for employment in the United States.

The only major exception for Form I-9 verification is for individuals hired on or before November 6, 1986. Employees hired on or before November 6, 1986 are exempt if they have been in continuous employment with an employer. Given the huge time gap, the certified Professionals in Human Resources (PHRs) at Total HR Management would imagine that few, if any, of your employees qualify for such an exception. More importantly, this exception would never apply when making the decision to classify workers as independent contractors. In other words, there are no loopholes.

Increased Workplace Rights for Independent Contractors

Do you know about additional federal provisions that call for increased workplace rights for employees who once were classified as independent contractors? Such provisions are coming at employers from all directions. These added requirements will have a lasting impact both on employers and employees moving forward. If you sign up for an HR audit with Total HR, we can examine your employment and staffing strategies, figuring out how these provisions affect your company.


For example, expanded requirements for employers to pay unemployment compensation insurance and workers’ compensation insurance now covers many workers once classified as independent contractors. In addition, the Family and Medical Leave Act now covers many of these workers once classified as independent contractors. The Department of Labor is focused on remedying independent contractors’ ineligibility to take time off under the Family and Medical Leave Act. They consider this an unfair loophole that needs to be closed.

Beyond Federal Problems, Beware the States


Although this article focuses on the federal hazards of deciding to classify workers as independent contractors, the state hazards are increasing as well. In a future article, we will detail the dangers of independent contractor misclassification in California and other states. For now, your company needs to realize that the threat is real. In the past, it wasn’t a big deal to classify a potential employee as an independent contractor. Today and beyond, the decision to classify workers as independent contractors has become a much riskier decision for your company

Overall, the benefits of deciding to classify workers as independent contractors have been greatly reduced in the past couple of years. Instead of being positive for your company, the decision to classify workers as independent contractors has become a real liability. Misclassification is a literal minefield of financial dangers for your company. However, the HR managers at Total HR Management can help minimize this danger for your company, allowing you to hurdle the federal regulatory and bureaucratic minefields. Our goal is to help you focus on the business of your business.

Total HR Management Can Help

To learn more about how we can help your company avoid the dangers of worker misclassification, contact Total HR Management today. Please call (800) 975-5128 today to speak with an HR professional and access the help your small to mid-sized company needs.


No Legal Advice Intended: This blog includes information about legal issues and legal questions.  Such materials are for informational purposes only and may not reflect the most current legal developments.  These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. You must not rely on the information on this website as an alternative to legal advice from your attorney or other professional legal services provider.





How A PEO Helps With Worker Classification And Independent Contractor Compliance

Worker Classification, Independent Contractor Compliance

Independent Contractor Compliance

Do you know how a professional employer organization (PEO) can help you your company with the challenge of worker classification and independent contractor compliance with the IRS? In this compliance series, Total HR Management outlines why your company should work with a PEO. The goal of working with a PEO is to relieve the HR administrative pressure. In light of the Affordable Care Act, the proper designation of employees and independent contractor compliance has become more challenging and more important than ever before.

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PEO Certification Legislation Small Business Efficiency Act Approved And Signed Into Law By The President

small business efficiency act, peo, professional employer organization

Small Business Efficiency Act

Total HR Management marks both the passage of the Small Business Efficiency Act by Congress and the signing into law of the act by President. Approved by the Senate on December 16 after being passed by the House of Representatives two weeks earlier, the bill was signed into law by President Barack Obama on December 19. The voluntary certification programs for Professional Employer Organizations will now help to separate the wheat from the chaff, allowing responsible HR outsourcing companies like Total HR Management to lead the way.

The Small Business Efficiency Act

The PEO voluntary certification program will be administered by the IRS and allow the quality Professional Employer Organizations to rise above the second-rate companies that have damaged the industry in the past. Backed by the National Association of Professional Employer Organizations, the passage of the bill is a true step in the right direction.

NAPEO Chairman Brent Tilson expressed his satisfaction with the approval; “This is truly a historic moment for the PEO industry… We urge the president to sign the extenders bill and we look forward to working with the administration on the regulations so we can get the necessary framework in place to broaden our reach within the small business community.”

Professional Employer Organizations

Under the legislation, PEOs can become IRS certified by meeting certain financial standards. Rather than being easy obstacles to navigate, the rigorous standards include bonding and independent financial audit requirements. By satisfying these reporting obligations and other standards set by the IRS, the weeds will be cut from the PEO industry, allowing the quality companies to take deeper root and provide better services

Once certified, a PEO would take sole liability for the collection and remission of federal employment taxes for client employees. According to NAPEO, companies that contract with a Professional Employer Organization would be assured they would not be liable for employment taxes once they remit their employees’ tax withholdings to the PEO. NAPEO believes such assurances should lead to a needed expansion of the PEO industry by fostering confidence.

Essential Update About The Employer Mandate Of The Affordable Care Act (PPACA)

Here is an essential update about the employer mandate of the PPACA. According to the Congressional Budget Office, the Obama administration’s decision this summer to delay the employer mandate of the Patient Protection and Affordable Care Act increased the price tag of health reform by $12 billion. It is important to realize that $10 billion of that figure is a result of a reduction in the collection of penalties and fines that would have been collected from employers for non-compliance. Inspired by an in-depth article in Benefits Pro, Total HR Management illuminates the reasons behind and key facts about the delay.

The Employer Mandate

The article in Benefits Pro outlined the following about the postponement in the enforcement of the employer mandate to 2015 until after the Congressional elections:

IRS Notice 2013-45 provided a one-year delay to three requirements under the healthcare reform law:

  • The annual obligation under Section 6055 of the Internal Revenue Code (Code) for insurers, self-insuring employers and other parties that provide “minimum essential coverage” to provide certain information to the IRS.
  • The annual obligation under Code Section 6056 for applicable large employers to report to the IRS and to the employer’s full-time employees as to whether and what healthcare coverage is offered to such employees.
  • The requirement under Code Section 4980H for applicable large employers to offer healthcare coverage to full-time employees or pay penalties, commonly known as the “play-or-pay” penalties (POP).

What it is important to understand is that PPACA does not require employers to provide health coverage for their employees. Although there is no blanket requirement, there is a substantial penalty for large employers (50 or more full-time employees) who choose to ignore the Employer Mandate of the Affordable Care Act. This penalty has been delayed until 2015.

Employer Mandate Penalties

employer mandate, peo, ppaca, obamacare

The Pieces of the Employer Mandate

In terms of calculating the number of workers employed, the definition of a large employer now includes part-time workers. If employers fail to provide minimum coverage for their employees and the dependents of those employees, the penalties will be calculated monthly. If you do not offer health insurance and you have 50 or more full time employees or equivalents, the penalty is waived for the first 30 employees, then the penalties kick in after that point at a rate of $2,000 per employee per year.

To avoid the penalties, the employer must offer “minimum essential coverage” to its full-time employees and their dependents. In this new definition, dependents go well beyond just children. They can also include parents, siblings, uncles, aunts, nieces, nephews, grandchildren, and in-laws. In fact, if a person has the same principal address as the employee and lives in the same household, that person is eligible to be listed as a dependent. And this is only the beginning of the vast set of challenges presented by PPACA.

Total HR Management understands how difficult the complicated maze of PPACA can be to a business owner. As a professional employer organization (PEO), we are here to help you effectively navigate that maze. If you have any questions or want to learn more about the employee mandate delay, please contact Total HR Management for help by calling (800) 975-5128 or emailing our human resources outsourcing experts at

How Much Does An Employee Have To Work To Be Considered Full-Time? Should I Designate Certain Full-Time Employees As Consultants To Save Money?

Although the federal Fair Labor Standards Act (FLSA) does not directly define full-time or part-time employment, there are standards to follow, particularly in terms of IRS monitoring of payroll tax compliance. Total HR Management recommends that our clients and potential clients be very careful when it comes to the issue of designating types of employment. Cutting corners often can lead to serious tax issues and legal problems from both a state and federal perspective.

From a straight legal perspective, it is up to the employer to decide how many hours per week employees must work to receive either full-time status or part-time status. As long as the employer designates what constitutes full-time and part-time status and applies it uniformly to all employees, the employer can grant or withhold employer-provided benefits on the basis of their own definition of full-time and part-time employment. Although this is the definition of the federal law, it is not how the law is enforced in practice. In addition, with the new healthcare reform laws in place, the laws regarding what constitutes full or part-time employment are going to become much more defined.

According to the Reference for Business website, federal law says part-time workers work less than 1,000 hours per year, or about 17.5 hours per week. They may work on a seasonal or year-round basis, and typically do not receive benefits. From the perspective of the new healthcare reform laws, any employee who works 30 hours a week or more is designated as a full-time employee. Any person who works less than 30 hours a week, should be designated as part time. Total HR Management recommends that any business follow these guidelines to avoid unnecessary problems.

Hiring part-time workers often appears to be a more attractive choice for business owners who need to keep costs to a minimum. According to Elwood N. Chapman, author of “Human Relations in Small Business,” part-time workers may show more enthusiasm for their jobs and can be more eager to learn. Hiring part-time workers gives employers the chance to try out a new hire before making her a full-time employee. A possible drawback to hiring part-time workers is that they may not be as committed to the job or the company as a full-timer. Part-time workers may also have less experience and may be limited in the types of tasks they can perform.”

Total HR Management recommends playing above board when it comes to full and part-time employment. If an employee is full-time, designate them as full-time. If they are part-time, then do the same, but change such a designation if the employee becomes full-time. When it comes to labor laws, playing with fire is a bad idea for any business.


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