Jobs: Optimism Has Employers Hiring Again
But Many Jobs Are for Independent Contractors and Benefits and Health Insurance Are Hard to Get
Encouraging signs in the job market have many employment seekers cleaning up their résumés. Although there is some reason for optimism, you may have to accept something less than full-time employment for the present. That is because cautious employers would rather hire part-time workers and independent contractors until more convincing signs of economic recovery begin to filter into their companies.
Unfortunately, this can mean that many part-time workers will have to forgo employee benefits such as health insurance, contributions to a 401(k), and vacations. Even more so, independent contractors will only get hourly compensation or a flat dollar amount for completing specific tasks.
But employers who think they can avoid payroll tax and employee benefits by mischaracterizing independent contractors may be in for a surprise. The Internal Revenue Service, Labor Department, and even local state governments may disagree and the consequences can be severe.
In one example, Maria used part-time, independent contractors in her small catering company during the holidays and when she had a surge of business. Her accountant advised her to do so because it was clearly within the IRS regulations. Therefore she did not withhold payroll tax or offer them any of the benefits that she gave to her permanent employees. Everyone was happy with this arrangement until a Labor Department inspector walked into Maria's shop.
The inspector said that even though the IRS rules were followed, the Labor Department had different concerns. IRS deals with tax issues while the Labor Department protects employees. Consequently it applies different tests to determine whether or not workers are independent contractors or employees. Furthermore, Maria was told to immediately reclassify her independent contractors as employees and pay back the payroll taxes that she failed to withhold over the years. And as “gift” for quick compliance, the Labor Department agreed not to levy penalties for noncompliance.
Most states have additional regulations. In Florida, for example, the state categorically eliminated the independent contractor category in the construction trades, for the purpose of workers’ compensation compliance. Instead, Florida requires sole proprietors in the construction trades to form LLCs or incorporate. They can apply for an exemption from buying workers’ compensation if they have three employees or less. Otherwise they become employers and must purchase workers’ compensation insurance for their employees.
Meanwhile, IRS differentiates independent contractors from employees based upon the degree of control that you have over your workers. More specifically, they look at three categories: behavioral control, financial control and the type of relationship of the parties.
Maria found out her accountant’s advice was correct regarding IRS, but not the Labor Department. The DOL has additional criteria because they wanted her to comply with the Fair Labor Standards Act. It deals with minimum wage laws, payment of overtime wages and child labor laws.
You can download an IRS pamphlet explaining how to classify your workers here. For more information about the Labor Department’s requirements, go to its Web site, www.dol.gov. To get information for any state government, download SBA’s state guides at www.sbaguides.com.
Finally, a good business accountant and lawyer can help you wade through the government’s red tape and defend you in court if it becomes necessary.
Jerry Chautin is a volunteer SCORE business counselor, business columnist and SBA’s 2006 national “Journalist of the Year” award winner, tenonline.org/sref/jc1bio.html. He is a former entrepreneur, commercial mortgage banker, and business lender.
Follow Jerry Chautin on Twitter: www.twitter.com/JerryChautin
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These same principles extend to payroll taxes, i.e. Social Security and Medicare. Thousands of citizens who understand the law have received full refunds of income and payroll taxes, resulting in millions of dollars being returned to their rightful owners. For evidence and more detail, see:
http://www.losthorizons.com/
Rebuttal is accomplished by properly filling out the tax return, attaching a rebutting affidavit (such as a Form 4852) in lieu of the W-2, and signing accordingly.
THAT'S ALL YOU NEED TO DO. As an employee of a non-Federally taxable business, you are not subject to taxation. That will hold up in court, and the IRS knows it. But most people do not.
You DON'T need a fancy lawyer, just do your homework!
However, when a company submits a W-2 that lists an ordinary, non-privileged citizen as having received “wages,” for instance, those “wages” are assumed under the law to be federally privileged, because that is the only purpose for a W-2.
The company’s erroneous testimony is the testimony of record UNTIL the citizen files his tax return. The tax return is the citizen’s testimony - signed under penalty of perjury - that either agrees to, or rebuts, the company’s testimony. If the citizen does not file, the company’s testimony stands, and the full weight of Federal Income Tax Law falls upon the citizen, because he is presumed by law to be a “taxpayer.” This is why non-filers and zero-filers (filers who put zeros in the return but do not rebut the W-2) lose in court, resulting in mountains of lower court cases that make it look like everyone is liable for the income tax, because the protesting taxpayers never addressed the fundamental issues and requirements of the law in the form and manner prescribed.
DON'T LET THE IRS SUCK YOU DRY!
The Internal Revenue Code makes use of many legal terms which have a
DIFFERENT meaning than the common words they mimic. Whenever the IRS
uses custom terms like "wages," "employee," "employment" and "self-
employment," those custom terms do not apply to all money, workers, and
occupations - they only apply to privileged, defined "wages," "employees,"
and "employment" that are subject to the income tax excise. The Internal
Revenue Code further acknowledges this by explicitly not including private sector
(non-federally-privileged) money, workers, or occupations in any of its custom
definitions. Ordinary occupations of common right are not, and never have been,
subject to the income tax law.
United States Supreme Court, So. Pacific v. Lowe, 247 U.S. 330, (1918):
“We must reject... the broad contention submitted in behalf of the
government that all receipts - everything that comes in - are income…”
F. Morse Hubbard, Treasury Department Legislative Draftsman, House
Congressional Record, March 27 1943, page 2580: “The income tax... is
an excise tax with respect to certain activities and privileges... the
income is not the subject of the tax."
The Sixteenth Amendment was passed only to ensure that all federally-privileged
income could be taxed, regardless of the source from which that federal income
was derived.
So “making money” or “having money” or “being paid” or “receiving earnings” or
being a private-sector employee in the normal sense of the word (as opposed to
the limited term “employee” defined in the Internal Revenue Code) is not the
subject of the Sixteenth Amendment, and is not the subject of the Internal
Revenue Code.
FIGHT THE IRS AND WIN!
Poor Maria. I wonder if the Declaration of Independence came to her mind as she dealt with the gentleman from the Labor Department.
He has called together legislative bodies at places unusual, uncomfortable, and distant from the depository of their public records, for the sole purpose of fatiguing them into compliance with his measures.
He has erected a multitude of new offices, and sent hither swarms of officers to harass our people, and eat out their substance.
Few small businesses can afford "good" lawyers and accountants; they all work for large corporations. The government is slowly choking our largest employer, small business.
Not sure what the article says, but it's hard to believe businesses hire based on optimism. No offense.
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