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56 • AUGUST 2012 • WORLD FENCE NEWS Avoid costly penalties for misclassifying employees as independent contractors continued from page 54 HOT DIP GALVANIZED ORNAMENTAL IRON WWW.ALAMOFENCE.COM Ornamental Iron Fence & Gates Protect yourself You can take steps to protect your- self. One is to consult with an attorney experienced in independent contractor law. That attorney can help you reduce your risk by taking several actions. Here are some examples: No Rust Fencing • Residential, Commercial & Industrial Hot Dip Galvanized After Welded 1) Prepare contracts that you have independent contractors sign, specify- ing their status. While contracts can provide an excellent defense against charges of misclassification, they must be written correctly to conform to fed- eral and state law as well as to indus- try-specific practices. "It's dangerous to use a canned CANT-4 CANT-4SQ Also Available Rollers To Fit 4" Square and 65⁄8" Round Posts. Authorized Locinox Dealer ⁄2" - 4" - 41 ⁄2" Round Posts. Call Us or Visit Our Web Site: www.alamofence.com A Division of Atlas Fence Co., Inc. BEST VALUE IN AMERICA Ph.: 713-981-1113 • Fax: 713-771-5046 Email: benitomgarza@alamofence.com COVER-4G Nylon Cantilever Gate Rollers and Safety Roller Covers Universal Roller Fits 3"- 31 contract," says Joerg. "You can think you have covered all your bases, but that may not be so." 2) Instruct you on correct man- agement procedures that maintain the independent contractor status of indi- viduals. 3) Ensure your independent con- tractor relationships conform to the re- quirements of your state law. "Each state has its own independent contrac- tor test for purposes of unemployment insurance, and yet another test for workers' compensation," says Joerg. "And in both areas there may be spe- cial tests for certain industries." Audit your workforce You should also conduct your own audit to assure your workers are cor- rectly classified and periodically renew the audit as circumstances change to make sure they are correct, suggests Hersh. And the audit should be conducted by an independent pro- fessional with expertise in the area. Your classifications must be based on facts, not wishful thinking. "Proper classification under fed- eral employment law has nothing to with how your competitors are classi- fying workers," says Hersh. "That is not a defense." Neither is the desire of individuals to be classified as independent con- tractors. "Classification is not about what the employer and the individuals agree to," says Hersh. "It has to be based on standards from the Internal Revenue Service and the U.S. Depart- ment of Labor." So what should your audit look for? First, realize that the risk of run- ning into a problem is high because the IRS and other agencies have not pro- vided a clear-cut definition of what constitutes an independent contractor. However, there are some common areas you can look at. "When determining independent contractor status, the first thing to look at is the level of control that you have over the individual," says Michael F. Brady, managing partner at the em- ployment law firm of Brady & Asso- ciates, Overland Park, Kansas. "If you order a person to show up at 7 in the morning and work until 5, and sched- ule meetings at 10 and 2 and 4 — well, that does not pass the independent contractor smell test. In contrast, the typical independent contractor takes your information, comes to an agree- ment as to date of completion and amount of money, and then does the work on his or her own schedule." Ask these questions Control isn't the only factor to consider. Indeed, the IRS has enumer- ated many others that may indicate employment status. Go to www.irs.gov and search for "Form SS-8." This form, "Determina- tion of Worker Status for Purposes of Federal Employment Taxes and In- come Tax Withholding," lists a num- ber of the key points to consider. Here are some of the most impor- tant areas covered by Form SS-8. The more "yes" answers you give to these questions, the greater the chances that a given person is in fact an employee and not an independent contractor: • Must the person follow your in- structions as to how work is to be per- formed? Do you dictate that work be done in a certain sequence and require that reports be made of what steps were taken or work accomplished? • Do you dictate what hours the person works, or even require the per- son spend all the working day on your property? And do you furnish the tools used for the work? • Does the person work only for your business, and not offer services to the general public? • Do you train the person in the work being performed? Do you re- quire that the person perform the work personally? • Are the worker's services critical to the continuation of your business? And do you have a continuing rela- tionship with the person? • Do you make periodic payments by hour, week or month rather than in a lump sum for a project? Do you pay the person's travel or other business expenses? • Does the person have no risk of loss from the results of services ren- dered? • Do you have the right to fire the person? And may the person quit at any time without incurring a loss? It all can be very confusing, and you are not alone if you have some sit- uations that could "go either way." continued on page 58