Personal Fitness Professional - September/October 2016 - 18


Melissa Knowles

IS YOUR INDEPENDENT CONTRACTOR

TRULY INDEPENDENT?

O

ne of the most egregious
misclassifications
too
frequent in our industry
is the 1099 "employee."
The fact that many refer
to their independent
contractors as 1099 employees is a true tell
that these employers are getting it wrong. A
person is either an independent contractor or
an employee. These two classifications aren't
intended to be blended.

HERE ARE THE THREE COMMON LAW
RULE CATEGORIES AN EMPLOYER
SHOULD REVIEW CLOSELY:
1. Behavioral. Does the company control or
have the right to control what the worker
does and how the worker does his or her job?
Do they have freedom in determining how
their tasks are performed? Do they wear a
company uniform? Are they free to explore
other contracts/jobs? Is the person given
training?
2. Financial. Are the business aspects of the
worker's job controlled by the payer? Are
they providing their own supplies? Paying
for their own liability insurance? Are business expenses being reimbursed?
3. Type of relationship. Are there written
contracts or employee-type benefits? Will
the relationship continue and is the work
performed a key aspect of the business? Is
the relationship going to be short-lived or

18

| WWW.FIT-PRO.COM | SEPTEMBER-OCTOBER 2016

a one-time project? Is the position one that
the business requires permanently? Is the
business proving health insurance, a retirement plan or paid time-off (PTO)?
Assumptions to avoid:
1. The worker wanted, or asked, to be treated
as an independent contractor.
2. The worker signed a contract.
3. The worker does assignments sporadically, inconsistently, or is on call.
4. The worker is paid commission only.
5. The worker does assignments for more than
one company.

THE IRS WANTS ITS MONEY.
Generally, an employer must withhold income
taxes, withhold and pay Social Security and
Medicare taxes, and pay unemployment tax
on wages paid to an employee. The IRS frowns
heavily upon 1099'ing someone to get around
these taxes. Well, they do more than frown.
They fine. Heavily. This is serious stuff. Along
with penalties, an employer would be held liable
for all the employment taxes of the misclassified
employee. Suits have totaled in the hundreds of
thousands to millions for businesses in violation
(Orange County Register, FedEx, etc.). Penalties
can go back as far as three years. Here's a breakdown of what a misclassification may cost you:
UNINTENTIONAL MISCLASSIFICATION:
} 1.5% of the employee's wages.

Protect your
business with
proper classification

} 20% of the employee's share of the FICA taxes
+ entire amount owed by the employer.
} No rights to recover from the employee what
is due to the IRS.
} Failure to file Form 1099 doubles the percentages: 3% for federal income tax and
40% of the employee's portion of the FICA
+ employer's share.
Intentional misclassification:
} The full amount of income tax that should
have been withheld.
} The full amount of both the employer and
employee shares for FICA.
} Interest and penalties.
} Criminal and civil penalties may be issued.
In addition to civil penalties, the IRS may levy
criminal penalties of $1,000 and/or one year in
prison for failure to properly classify and withhold wages. If the IRS obtains a felony conviction against a person or company for "attempting to evade or defeat tax," the fines are up to
$100,000 ($500,000 in the case of a corporation),
or imprisonment not more than five years, or
both, together with the costs of prosecution.
The penalties may extend beyond the ownership, as a responsible person (including corporate officers and employees or members or
employees of a partnership) with authority over
the financial affairs of the business who willfully
fails to collect and pay taxes may be held personally liable for the total amount of the uncollected tax up to 100% under the provisions of


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Table of Contents for the Digital Edition of Personal Fitness Professional - September/October 2016

Contents
Personal Fitness Professional - September/October 2016 - Cover1
Personal Fitness Professional - September/October 2016 - Cover2
Personal Fitness Professional - September/October 2016 - 3
Personal Fitness Professional - September/October 2016 - 4
Personal Fitness Professional - September/October 2016 - 5
Personal Fitness Professional - September/October 2016 - Contents
Personal Fitness Professional - September/October 2016 - 7
Personal Fitness Professional - September/October 2016 - 8
Personal Fitness Professional - September/October 2016 - 9
Personal Fitness Professional - September/October 2016 - 10
Personal Fitness Professional - September/October 2016 - 11
Personal Fitness Professional - September/October 2016 - 12
Personal Fitness Professional - September/October 2016 - 13
Personal Fitness Professional - September/October 2016 - 14
Personal Fitness Professional - September/October 2016 - 15
Personal Fitness Professional - September/October 2016 - 16
Personal Fitness Professional - September/October 2016 - 17
Personal Fitness Professional - September/October 2016 - 18
Personal Fitness Professional - September/October 2016 - 19
Personal Fitness Professional - September/October 2016 - 20
Personal Fitness Professional - September/October 2016 - 21
Personal Fitness Professional - September/October 2016 - 22
Personal Fitness Professional - September/October 2016 - 23
Personal Fitness Professional - September/October 2016 - 24
Personal Fitness Professional - September/October 2016 - 25
Personal Fitness Professional - September/October 2016 - 26
Personal Fitness Professional - September/October 2016 - 27
Personal Fitness Professional - September/October 2016 - 28
Personal Fitness Professional - September/October 2016 - 29
Personal Fitness Professional - September/October 2016 - 30
Personal Fitness Professional - September/October 2016 - Cover3
Personal Fitness Professional - September/October 2016 - Cover4
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