The Importance of understanding the exposures of having Independent Contractors
By Lisa R. Paul, CPCU
Paul Hanson Partners Specialty Insurance Solutions
During these difficult economic times we are having more of our customers seek to use independent contractors in lieu of employees to reduce employer related wage, benefits and insurance costs. To that end we have included a copy of an article on whether an individual meets the IRS or state law on their status as an independent contractor or employee. Please note that if the individual does not meet the IRS criteria significant taxes and penalties may apply.
What’s at stake? If a worker is not an independent contractor, the employer would be liable for back income or payroll taxes, back employer’s portion of FICA taxes and insurance premiums for workers’ compensation.
In an effort to increase federal and state revenues the IRS and state tax authorities have come down hard on the classification issue, targeting health care, trucking, construction industries, messenger services and those companies that tend to use professional consultants.
In light of the IRS’s crackdown on independent contractors, it is vital that companies considering classifying workers as independent contractors first seek professional advice. If the individual or company meets the criteria of an independent contractor and the contractor is to provide their own insurance coverage we have also attached a sample insurance requirement document that we suggest you incorporate into your contractor agreements.
In future issues of this newsletter please look for further explanations on the various insurance products for independent contractors. We value your business and hope you find these communications helpful.
Lisa R Paul, CPCU
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