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ICon4Intuit Home > Frequently
Asked Questions
FAQ
Hiring Manager FAQs | Independent
Contractor FAQs
Hiring
Manager FAQs
Who
is an Independent Contractor (IC)?
- An independent contractor is a person or entity
that renders a specific service or performs a specific assignment,
for specified compensation and for specified results. To qualify
as an IC, the person or entity must be set up and operate as an independent
business and make their services available to the general public.
They must also control or supervise the manner or means by which
the work is performed. Therefore individuals who are clearly employees
of other companies that withhold their payroll taxes, i.e., issue
a W-2 at year-end, such as state licensed temporary agencies, third
party payroll service providers, consulting and contracting firms
will be accepted as ICs. Someone may be an IC for one company &/or
project, but not necessarily for another.
- The IRS considers many factors to determine
IC versus employee status, such as:
- the nature and degree of control over the
performance of the work (who has control over when, where and
how the work is performed),
- the degree to which the contractor is engaged
in an independent business with services available to the general
public, or the extent to which the work performed by the contractor
is the same as that performed by regular employees,
- whether the contractor is free to set his/her
own hours and location of work,
- the duration of the work relationship.
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Why do companies need a compliance
process?
The IRS and state taxing authorities perform thousands
of company audits per year. It is a requirement in every tax audit
that Independent Contractors are reviewed for classification. Government
statistics show over 46% of contractors audited are found to be mis-classified.
The consequences of this are huge, resulting in extensive administrative
demands on our company resources, and more importantly, significant
assessments in back taxes, fines, penalties, benefit(s) and back pay
liabilities. Having a comprehensive compliance program in place virtually
eliminates this risk.
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Why is the company concerned
about the status of my contractor?
- If the company incorrectly hires an individual
as an IC, the organization risks substantial penalties, back taxes,
and potential benefit obligations. Persons responsible for entering
into such improper agreements may also be held personally liable
for penalty under the Internal Revenue Code.
- Effective January 1, 2001, the California
Employment Development Department requires companies to submit the
names of all ICs paid or contracted to be paid $600 or more within
a calendar year within 20 days of the payment or contract approval.
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Why
should I care about validating my contractor’s status?
So the individual gets paid and the
company avoids the risk of liability for back taxes and penalties.
This process not only validates IC status, it also sets up the individual
as an approved vendor, so their invoices will be paid when submitted.
Also, managers are responsible for complying with all company policies
and procedures. Violations of company policies regarding ICs reflect
adversely on a manager's judgment and performance and, because it puts
the organization at risk of substantial financial liability, could
subject the manager to disciplinary action.
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What do I need to know before
starting the process?
Thoroughly discuss and agree upon the terms
of the engagement with the contractor. Areas to discuss include:
- Work location
- Terms in your standard contract
- Start & end dates
- How the project will be managed
- Let them know that they will need to provide
proof that they are set up as a separate business by government
standards
- Advise the contractor that they will be
asked to complete an on-line questionnaire
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When do I start the IC Qualification
process?
Individuals should NOT begin work until their IC
status is validated, and their contract is signed by someone with appropriate
contract signing authority. To ensure sufficient processing time, complete
the on-line IC questionnaire and submit the required documents at least
7 days before the project is targeted to begin.
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If I already had a contract
with an IC, do I need to validate the status again?
Yes, if the individual begins a new assignment.
An individual's status as an Independent Contractor may vary from project
to project, and as other employment factors vary. An individual validated
as IC for one project must again be validated for future projects.
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What if the individual(s)
work for their own company, corporation or partnership?
This is not determinative of IC status. Even
if they bill through their own corporation, partnership or LLC, their
IC status must be validated.
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Do I still need to qualify
a contractor who is incorporated or has worked as an independent contractor
in the past?
Yes. Neither incorporation
nor past qualifications guarantee an independent contractor classification.
The government looks
not only at the contractor’s business structure, but also at how
the working relationship is managed for each particular project. For
example, the same contractor may meet the requirements for a project
that allows them to work at home and choose their own hours, but not
for one that requires close management and team participation.
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Who completes the on-line
evaluation?
The hiring manager begins the process by
completing their portion of the evaluation. Once completed, the contract
worker is then directed to complete their portion.
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How long will the qualifying
process take?
If you have thoroughly discussed the project
with the contractor it will take only 15 minutes to submit your questionnaire.
Once your contractor has submitted their questionnaire, you will have
your answer within 30 minutes.
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What do I do if my contractor
does not qualify as an IC?
Hire the individual as a payrolled professional
through ICon’s Payroll Service.
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Why is it such an issue
to bring back former employees or returning retirees?
The taxing authorities have found a simple
way to identify potentially misclassified workers, such as former employees
or returning retirees. When a company issues a W-2 and 1099 tax form
to the same worker in the same year this heightens the risk of misclassification,
as well as increasing the risk of an audit.
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Is it a conflict of interest
for ICon to be performing the classification process and payrolling
those contractors that do not qualify?
ICon is compensated for each service performed,
therefore it doesn't matter which recommendation is issued. The on-line
qualification process is fully automated and ensures that recommendations
are completely objective and cannot be influenced by human judgment or
opinion.
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Independent
Contractor FAQs
Who is an Independent Contractor
(IC)?
- An independent contractor is a person or
entity that renders a specific service or performs a specific assignment,
for specified compensation and for specified results. To qualify
as an IC, the person or entity must be set up and operate as an
independent business and make their services available to the general
public. They must also control or supervise the manner or means
by which the work is performed. Therefore individuals who are clearly
employees of other companies that withhold their payroll taxes,
i.e., issue a W-2 at year-end, such as state licensed temporary
agencies, third party payroll service providers, consulting and
contracting firms will be accepted as ICs. Someone may be an IC
for one company &/or project, but not necessarily for another.
- The IRS considers many factors to determine
IC versus employee status, such as:
- the nature and degree of control over the
performance of the work (who has control over when, where and
how the work is performed),
- the degree to which the contractor is engaged
in an independent business with services available to the general
public, or the extent to which the work performed by the contractor
is the same as that performed by regular employees,
- whether the contractor is free to set his/her
own hours and location of work,
- the duration of the work relationship.
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Why do I need to complete
the on-line IC questionnaire?
The questionnaire will help determine if
you can be classified as an independent contractor according to IRS regulations
(and thus avoid serious penalties for misclassification), provide necessary
financial reporting data, and establish prudent and consistent business
practices.
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Why does an IC have to
provide documentation?
To appropriately demonstrate
that the independent contractor is set up and operating as an independent
business. In an
audit, the burden of proof is on the company. The first thing an auditor
asks for is evidence of the contractor’s independent status. Audits
can go back three years, making it unlikely that the contractor is available
or motivated to then provide this evidence. Rebuilding / recreating these
files is not just costly, but almost impossible after the fact. ICon
keeps the information in strictest confidence and releases it only for
audit defense purposes
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If my IC status for this
project is rejected, do I have other options?
Yes. Enroll as a payrolled professional through
ICon Professional Services.
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What
are the benefits of using ICon’s Professional Payroll Service?
For the employer the benefits include mitigation of misclassification
and co-employment exposures.
For the contractor the benefits include:
- immediate medical and dental coverage,
with a 50% contribution from ICon
- complimentary life insurance and
- the opportunity to enroll in a 401(k) plan.
- increased cash flow with
- various payment options that include weekly,
bi-weekly, monthly, one-time or pre-authorized payments,
- direct deposit and much more.
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Doesn’t
the contractor make less money if they are payrolled?
The contractor ends
up with the same if not greater disposable income because the employer’s
contribution to taxes are paid by ICon. The contractor would normally
be required to
pay Self Employment Tax. Click on the following link for a 1099 vs. W-2
comparison (http://www.icontract.com/contractors/1099.htm).
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What
must be included on a Qualified IC’s invoice?
- INVOICE DATE
- CONTRACTORS INVOICE NUMBER (specific to billing
period).
- BILL TO NAME and ADDRESS
- HIRING MANAGER'S NAME
- EXACT PAYEE NAME used in the original IC Services
Agreement.
- MAILING ADDRESS to send the payment
- DESCRIPTION OF SERVICES provided
- DATE(S) OF SERVICES
- TOTAL AMOUNT DUE
- COST CENTER NUMBER / DEPARTMENT BILLING NUMBER
- PO or VENDOR NUMBER unique to the IC as provided
by the hiring manager.
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