Important Notice Regarding Colorado Flood Action and Independent Contractors and Employee Status
September 19, 2013

 We are sending you this newsletter to communicate suggestions to Colorado flood victims regarding what steps those affected should be taking.  We would also like to remind you of the importance of proper classification of workers as employees versus independent contractors. This classification is becoming more and more important with the implementation of the Affordable Care Act. You can read more detail about each of these topics below.

Colorado Flooding

Steps to Take Now

 

    Due to the recent flood events, many people throughout Colorado have suffered devastating losses and damages. If you have not personally suffered a loss, chances are you know someone who has. In the midst of these tragic events, we hope to offer a few suggestions that can help those in need with recovering income from their business or personal loss.

    The things to do as soon as possible are:

           a) Maintain detailed records and receipts of payments

               for damage repairs

           b) Keep newspaper articles related to the disaster 

           c) Take photos or videos of damaged areas

           d) Try and find photos illustrating what the property

                looked like prior to the flood damage

           e) Keep records of police reports, if any were made

    Because areas in Colorado have been declared "federal disaster areas", there has been tax filing and payment relief for persons affected by the floods under guidance from both the Colorado Department of Revenue and the Internal Revenue Service. For instance, Coloradoans that live and own businesses in these "disaster areas" can amend their 2012 tax return to claim any casualty losses suffered and receive immediate financial relief.

    This is a short overview of the steps to take as soon as you can. If you would like more detailed information on casualty loss deductions and reporting, please do not hesitate to contact us at your convenience.

Independent Contractors

Employee versus Independent Contractor

 

    It is critical that business owners correctly determine whether the individuals providing business services are employees orindependent contractors. As a general rule, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Generally, you do not have to withhold or pay any taxes on payments to independent contractors.

    On the surface it would then appear that as a business owner, you would prefer to have a person classified as a contractor. One of the pitfalls to treating a possible employee as a contractor is if the "contractor" is injured.  If a sympathetic judge agrees he/she should have been treated as an employee, the business will not be covered by Worker's Compensation Insurance and the damages are to be fully paid by the business.

    You should also note that Colorado has increased their audit efforts in this area in an attempt to gather state unemployment taxes, which are not paid if the business treats a person as a contractor.

    Changes in various state and federal laws are likely going to have an effect on the analysis given to independent contractors. The Affordable Care Act will require many employers to cover employee health insurance and thus there will likely be incentives for employers to classify workers as independent contractors. As a result of these classifications, there has been an increase in IRS audits regarding worker status.

    If you determine that your business wishes to pay a person as an independent contractor, then you must meet a 21 topic factual test which has been issued by the courts and followed by the IRS.

    The most important consideration with any independent contractor (also an issue considered important in audits) is whether there is an independent contractor agreement in place. Factors indicating employment status rather than contractor status include: whether the business provides work space or tools to the person; whether business employees direct and supervise the person; whether the person has no other businesses that he/she provides services and whether expenses of the person are reimbursed by the business. Though there are several other items to consider, these items are the foundation for the determination of independent contractor classification. If you determine that you wish to enter into an independent contractor relationship with a person, we strongly suggest you consult a lawyer to draft this agreement.

     Regarding the flooding in Colorado, the most important thing is that you and your loved ones stay safe. Please let us know if there is anything we can do to assist you in these tragic circumstances.  
     The recent changes in employment laws are complex and important with the changing healthcare laws associated with the Affordable Care Act. If we can assist you with any of these changes, or if you would like to discuss these issues further, please do not hesitate to contact us at your convenience.
 Firm Signature
Soukup, Bush & Associates, P.C.
(970) 223-2727
www.soukupbush.com