Multi-Ops, you've been warned.

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DJ Wes

DJ Extraordinaire
Apr 23, 2008
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IRS cracks down on contractor use

Companies that misclassify workers as independent contractors instead of employees could face scrutiny and penalties in Internal Revenue Service audits. Over the next three years, the IRS will audit 6,000 randomly selected businesses nationwide, including small and tax-exempt employers, on their compliance to pay employment tax, or FICA and Medicare.

Among the most often misclassified workers are truck drivers, construction workers, home health aides and high-tech engineers.

The audits, likely of 2007 and 2008 tax years, will focus on whether companies misclassify workers to avoid their tax obligations. Such misclassifications contribute to 82% of uncollected taxes, according to the IRS.

Misclassifications can be costly. Along with back taxes and penalties owed for the three-year statute of limitations on audits, workers reclassified as employees may make demands on employers for benefits such as retirement, medical, paid time off and other fringe benefits.

Workers are generally considered employees when someone else controls how and when they perform their work. In contrast, independent contractors are generally in business for themselves, obtain customers on their own and control how they perform services.

Sources: NewsOK, February 7, 2010; New York Times, February 17, 2010
 

Thanks for sharing Wes. Its a tricky issue because some of the employers are banking on the workers not complaining for fear of loosing that income/job. One of the common mistakes some employers/multi-ops make in regards to their sub contractors is saying "He/she works for me!" That statement can be used as evidence to put that person in an "employee" status rather than an Independent Contractor Status.
 
If the 'contracted' DJ is not free to work for another Multi-op DJ Service or for their own DJ service, they are an employee, IMO.

That too!
 
They are not an employee if they purchase their own equipment...which is what my guys have to do.

Can they use this equipment to DJ for your competition or for themselves? Are they allowed to hand out their own business cards even when DJ'ing an event you sent them on? Are they allowed to say their own company name over the mic? I'm just asking because the IRS will ask the same questions.
 
They have their own equipment, but who provides the music? Do they have to fill out a gig report every time? Do you tell them where to go, when to be there, how long to play? Just having their own equipment means squat to the IRS, better so do some more research my friend.
 
Employee or Subcontractor?
Multi-system owners must be aware of the requirements the IRS sets to define a sub contractor. Failure to properly classify your DJs could result in fines and back taxes. Check with your CPA.
Subcontractor: Owns their own equipment and are not given specific instructions on how to accomplish a job. The Subcontractor is usually given a 1099 at the end of the year.
If you use true sub-contractors, it is highly recommended that you have a contract with the sub-contractor for each event they are assigned. This reduces the potential for misunderstandings and communication problems, and reduces liability in the event the sub-contractor fails to cover the event.
Employee: Uses your equipment. Company withholds taxes, social security and workers compensation, paying a portion of the employee’s social security and workers compensation.
Rental Method – One company claims to have survived two audits on the status of their sub contractors by creating a paper trail of renting their equipment to their sub contractors for each event. Check with your CPA.
 
That would be classified as 'casual labor'. Good luck with that. ;)

Wes,

The IRS is sooo laid back now, I wouldn't worry.

I owe back taxes from the 80's -- are they chasing me around...? No.

Are they auditing me? No.


Why? Plain and simple -- you have to have the balls to confront those who work for you -- the IRS works for YOU!


BTW, does that make them an employee, or contractor... ;)
 
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This will never fly because of the way construction is worked.

A General contractor puts out a job for subcontractors it requires that the job begins on a specific date and is completed on or before a specific date. The contract calls for exactly how much money is paid and in what intervals, the contract also calls for what type of materials are to be used and how they are to be used. The way this is worded it will shut down every single construction or government contract job in the country!

Unless it exempts construction!
 
According to my lawyer and accountant as long as they own their own equipment and I provide a 1099 at the end of the year I'm fine. Good enough for me.