Question

For the written project, you will research and write a business memo regarding an aspect of payroll accounting. Assume that you are a payroll supervisor for a business with employees. As a payroll supervisor, you must be aware of many payroll related laws and issues and may be involved in establishing payroll related company policies to remain in compliance with such laws. Write a memo to the business owner addressing the question posed in the topic below. In this memo, address the topic question and explain why you think this is an important issue for the business.

Topic: Employee or Independent Contractor?

The owner of the business is considering hiring an individual to assits with a special project. the owner is debating whether the individual should be classified as an independent contractor or an employee, As the payroll supervisor, please inform the owner of the rules related to this determination and what the impact on the business is. For example, what are differences to the employer in paying and withholding of payroll taxes? Are there penalties or misclassifying workers as independent contractors? What are the differences in reporting for independent contractors versus employees? Please cite examples of when it would be appropriate to classify an individual as an independent contractor for the business and steps you would take to ensure this is being classified correctly.

The paper should be approximately 1 1/2 to 2 pages in length, single-spaced. Your memo should be a well-written business document, with attention paid to spelling and grammar.

Answer 1

Here are the Differences between Employee of the company and An independent Contractor :

Unlike traditional employees whose jobs may encompass a wide variety of duties and tasks, independent contractors are only responsible for performing the services outlined in a contract or Scope of Work (SOW).

Because the owner of the business is considering hiring an individual to assits with a special project , so it cannot be classified as employee of the company instead classified as an independent Contractor

When workers are classified as independent contractors, organizations avoid paying the benefits that most employees are entitled to such as health insurance, paid time off, and the employer's side of payroll taxes.

The IRS is alerted of potential misclassification in several ways. A misclassification whistleblower may file an SS-8 form, receive a 1099 and W-2 in the same year, or try to claim unemployment or disability which results in an audit of the business.

Regardless of whether or not misclassification is intentional, it puts organizations at risk for owing back taxes, benefits, and penalties for its misclassified workers. Here are five consequences of employee misclassification and what our company can do to remain compliant.

·Legal Compliance

·Penalties, Fines, and Back Payments

·Class Action Lawsuit

·Benefits Owed to Re-Classified Employees

·Reputation Damage

A clear SOW provides the foundation for a good working relationship, outlining the expectations of both parties. It should include details about the work to be done, a timeframe, a process for managing changes, and payment terms.

Owner must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee but do not generally have to withhold or pay any taxes on payments to independent contractors.

Thus , Owner don’t have to worry about withholding taxes for contractors they engage. Independents should be aware of their own tax responsibilities. They pay what’s known as self-employment (SE) tax, which includes both the employer and employee halves of Social Security and Medicare (FICA).

The law requires businesses and government entities (defined as a "service-recipient") to report specified information to the Employment Development Department (EDD) on independent contractors (defined as a "service-provider"). Owner pay the independent contractor $600 or more or enter into a contract for $600 or more.

The above are the major Differences between employee & Independent Contractor

There should be proper Classification of independent contractors and employees that helps the business remain compliant.