Independent Contractor and Employee Worker Reclassification Audits
Either the EDD or the IRS can examine a business' returns for proper worker classification. The determination of whether a worker is an independent contractor or an employee is a fact-based determination which involves a variety of factors, with some factors often weighing more than others. The EDD provides a handy "Employment Determination Guide," Form DE 38, to guide differentiating between employees and independent contractors. The EDD form suggests that the answers to the following questions are helpful to telling the difference between these workers:
2. Can the worker quit or be discharged (fired) at any time?
3. Is the work being performed part of your regular business?
[Yes answers to the above 3 support employee status.]
4. Does the worker have a separately established business?
5. Is the worker free to make business decisions which affect his or her ability to profit from the work?
6. Does the individual have a substantial investment in their job which would subject him or her to a financial risk of loss?
[Yes answers to the above 3 support independent contractor status.]
7. Do you have employees who do the same type of work?
8. Do you furnish the tools, equipment, or supplies used to perform the work?
9. Is the work considered unskilled or semi-skilled labor?
10. Is the work considered unskilled or semi-skilled labor?
11. Is the worker paid a fixed salary, an hourly wage, or based on a piece rate basis?
12. Did the worker previously perform the same or similar services for you as an employee?
13. Does the worker believe that he or she is an employee?
[Yes answers to the above 7 support employee status.]
2. If the IRS or the Department of Labor has previously audited a taxpayer concerning the classification of the workers, the taxpayer will be eligible only if the taxpayer has complied with the results of that audit.
3. An SS-8 determination does not constitute an examination and does not prevent a taxpayer from being eligible for the VCSP. However, the IRS retains discretion as to whether to accept a taxpayer's application for the VCSP.
4. Exempt organizations and governmental entities may participate in a VCSP if they meet all of the eligibility requirements.