On Tuesday the Attorneys general from New York, New Jersey and Montana issued a letter of warning to FedEx regarding its current independent contractor driver model.  If FedEx would not abandon its current independent contractor model for home delivery drivers they would be forced to bring suit against the shipping giant. 

The letter contained harsh accusations like “blatantly misclassifying its drivers”; FedEx Ground has denied these individuals the employment rights guaranteed by law. Practices which would support the allegations of worker misclassification and cited by the AG’s; the work performed is a core competency of FedEx Ground, drivers integrated into business functions of the company, determines the hours drivers work, how they load and deliver packages, and limits the drivers ability to compete other employment. The inability to work for the competition clearly creates financial dependency on Fed-Ex similar to that of an employee.  

More than 1,000 drivers would be impacted by the changes should FedEx cave in under the pressure from this powerhouse. FedEx must respond with a decision by October 27, 2009 a deadline that is fast approaching.  Should Fed-Ex disregard the letter the AG’s will have little choice but to file suit. The AG’s are confident they would win the suit based on its findings during the investigation of FedEx worker practices. According to the AG’s there is more than enough evidence of worker misclassification. 

The suit is being called a “multistate effort” and this is not the first time this issue has come up with Fed-Ex. Earlier this year in June attorneys general from six other states wrote to FedEx Ground, demanding changes to the existing driver model. States are teaming up forming a task force in hopes of pressuring FedEx Ground to change its driver business model.

FedEx plans to challenge the IRS finding from the audit however final resolution any time soon highly unlikely.

“We believe that we have strong defenses to the proposed assessment and will vigorously defend our position, as we continue to believe that all of FedEx Ground’s independent contractors, including those providing the FedEx Home Delivery service, are independent contractors,” FedEx said in the filing.

The IRS is also reviewing Fed-Ex for similar issues related to tax years 2004 - 2008.

IRS Summertime Tax Tip 2009-20 has the top ten things every business owner should know about hiring people as independent contractors versus hiring them as employeesThe warning came in the form of a “tax tip” from the IRS. Its target is the small business owner. ”Whether you hire people as independent contractors or as employees will impact how much taxes you pay and the amount of taxes you withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them”.

Before you run out and hire a contractor stop at the IRS web page and pick up your free “get out of hot water” card.  Stop by and download 10 tips for keeping you on the right track and the IRS at bay. Other must see items like the tax videos  and employer guides are available for the taking.

After two long years of investigating tax cheats the state of Connecticut put the hammer down on companies scamming the payroll taxes and workers’ comp system by misclassifying employees as independent contractors. A closer look at the construction industry revealed worker misclassification and tax fraud are just the tip of the iceberg. Other criminal offenses include worker exploitation, hiring undocumented workers and identity theft to name a few all in the name of greed.  How wide spread is the problem in Connecticut? A team of state labor department employees issued 220 stop work orders during the past 22 months, a rate that far exceeds New York and Massachusetts.

Worker misclassification has plagued our nation for years and the tax cheats appear to be winning. Not so fast.  States like California, New York, New Jersey and Massachusetts state authorities have been winning the war for quite some time. Joining the ranks is Delaware who became the latest state to impose stiff penalties on construction industry employers who improperly classify employees as independent contractors. Enforcement programs or “feet on the street”, a  task force comprised of state and federal agents are how these states are shutting down illegal operators.

The payoff? In New York, authorities recovered more than $4.8 million in unemployment taxes since September 2007, issued more than $1 million in unemployment insurance fraud penalties, and more than $1.1 million in workers’ compensation fines and penalties. In Massachusetts, authorities recovered $1.4 million between fines, unpaid wages and tax assessments.

Looks like Larry and the other cable guys aren’t going to take it any more.

Here we go again!  An unsuspecting company, RCN must now pay the ultimate price for hiring misclassified workers; triple the damages in Massachusetts for wage and hour cases. To boot RCN must live with the  bad publicity for years to come. RCN may already regret the hand shake with the third party shell company who supplied them the workers. The contractors showed up for work at in Massachusetts through a deal brokered between RCN and Pennsylvania based Custom Cable Concepts. 

 On June 2, 2009 a former cable installer filed suit against RCN Corp. claiming he was an employee and not an independent contractor.  Fritz Ellenberg claims he is owed unpaid overtime, insurance coverage, and compensation for medical bills from an on-the-job-injury he sustained and reimbursement for out of pocket expenses for using his own vehicle and equipment. Fritz and more than 1,000 other U.S. installers are paid as “independent contractors” and recognize this arrangement has ripped them off for years.  They claim they have been deprived of overtime and other employee benefits enjoyed by RCN employees. Many U.S. businesses are realizing great savings by illegally characterizing workers as independent contractors rather than employees, said Harold Lichten, Elienberg’s attorney.

 Should Ellenberg and his fellow cable cronies win RCN will end shelling out millions! Fellow industry employers can thank these two for the knock at their door from the auditors. Oh and don’t forget about your worker lawsuits being filed as your reading this blog! 

Topping off the list is -simply put- making too much money. So how can you continue to earn like the mogul that you are, but still reduce the likelihood you will show up on the target list for an audit?

One way for small businesses to avoid unnecessary scrutiny is by going out and filing for a Federal Employer Identification number (FEIN). While a FEIN is not required by law unless you are making payments to W2 employees, by reporting excessive amounts of income on a social security number, you could make the income stand out as extreme for an individual and potentially warrant an audit. Obtaining this item is especially important for small businesses or Independent Contractors who will make payments to subcontractors.

Stay Organized. Accountants claim that small businesses are known for being sloppy record keepers. If and when an audit does occur, having your records in order will save headache and potentially additional scrutiny. This article discusses the importance for finding the correct preparer and the assistance they should provide you with in the case an error or audit does occur.

How can you save money without cutting corners? In honor of St. Patrick’s Day, one of my favorite tax blogs has provided 17 ways to save some green when filing your taxes this year.

Happy Filing!