Jan. 31 filing deadline remains for employer wage statements, independent contractor forms

As the year comes to an end, the Internal Revenue Service reminds employers and other businesses that wage statements and independent contractor forms still have a Jan. 31 filing deadline.

Before the Protecting Americans from Tax Hikes (PATH) Act, employers generally had a longer period of time to file these forms. But the 2015 law made a permanent requirement for employers to file their copies of Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration by Jan. 31.

Certain Forms 1099-MISC, Miscellaneous Income, filed with the IRS to report non-employee compensation to independent contractors are also due at this time. Such payments are reported in box 7 of this form.

The early filing date means that the IRS can more easily detect refund fraud by verifying income that individuals report on their tax returns. Employers can avoid penalties by filing the forms on time and without errors. The IRS recommends e-file as the quickest, most accurate and convenient way to file these forms.

Get a jump on the due date

Employers should verify employees’ information. This includes names, addresses, and Social Security or individual taxpayer identification numbers. They should also ensure their company’s account information is current and active with the Social Security Administration before January.  If paper Forms W-2 are needed, they should be ordered early.

Automatic extensions of time to file Forms W-2 are not available. The IRS will only grant extensions for very specific reasons. Details can be found on the instructions for Form 8809, Application for Time to File Information Returns.

For more information, read the instructions for Forms W-2 & W-3 and the Information Return Penalties page at IRS.gov.

Failure To Establish Clear IP Ownership-What Every Startup Needs To Know Part 6

By Debby Winters

In the last blog post we looked at how founders and stakeholders can claim IP. In this post we will examine how independent contractors could try to claim IP rights.

Startups often misconceive that hiring a contractor to create work for a business automatically gives the startup ownership rights of the work.  This is not always true and to ensure that the startup does owns all IP created in all startup-funded work, the startup should have independent contractors enter into an independent contractor agreement that states this is the case. Most often the agreement will contain an assignment clause stating that the independent contractor agrees to assign all inventions and IP to the company.

Additionally, startups frequently use independent contractors to create websites, software, marketing materials and prototypes for instance. Failure to implement written independent contractor or consulting agreements with suitable IP clauses that clearly establish the startup’s ownership rights to the IP prior to commissioning the contracted work can be devastating. This is particularly important if the startup plans to sublicense the work to others, make multiple copies of the work for sale, or hire others to modify the work.

Often the startup will agree to allow use for the consultant’s portfolio or work or other limited engagements. These are items open for negotiation between the startup and the contractor.

All agreements should be in writing and signed by both parties. It should be clearly stated that the startup’s confidential information is only for use for the benefit of the startup; require disclosure of ideas, inventions and discoveries related to the agreement; and include a statement of ownership rights over ideas, inventions and discoveries. Recordable assignment of IP rights should be required to show clear ownership of inventions and other IP developed by its contractors or consultants.

While the approach taken with employees of the startup are similar to these, there are some differences so we will discuss those in the next post.

UBER- Independent Contractor or Employees?

By Debby Winters

Uber has been a hot topic lately. Usually they are in the news for making cab companies mad but the recent California Labor Commission ruling that an Uber driver is an employee, not an independent contractor, has put the company’s entire business model into turmoil.  Uber Technologies Inc. v. Berwick. The case was filed in the Superior Court of California, as an appeal from the Commission decision.  The ruling awarded the plaintiff payment for business expenses, e.g. tolls, mileage.  These are things that employees, not independent contractors, can be reimbursed for in many companies. This ruling may eventually mean that Uber may have to give these “employees” health insurance and other benefits afforded to employees. This could radically disrupt the manner in which Uber does business. Something for other companies that operate as Uber does to consider is that, based on this ruling other companies could have their independent contractors ruled as an employee.  Let’s consider a few recommendations that could help you to distinguish independent contractors with your company from company employees.

Businesses that engage someone as an independent contractor should, first and foremost, have an independent contractor agreement with that individual or that individual’s business. This agreement should specify the contracted services and what the contracted rate is for those services. If you can, the duration of the agreement should be specified. It could be something as simple as stating that once a project is over the arrangement ends. Most employees, if they have a written agreement with the company do not have an end date since the arrangement isn’t viewed with an ending date but rather to continue as long as the employee is doing the job hired to do. In addition, if applicable, the agreement should specify that the company is not providing insurance to cover the services. The agreement should also specify that no taxes will be withheld and no additional benefits will be provided. The independent contractor agreement should specify how payment will be made and that the business will issue the independent contractor a Form 1099 at the end of the year.

Once you have the agreement in place, consider who will decide how the work will be performed. To be an independent contractor, the company should not dictate how, or potentially eve when, the services are performed. Courts have frequently denied a business’ claims that an individual was an independent contractor when there is evidence that the business is controlling the means and methods for how the individual performs the work. Indeed, permitting contractors to determine when they perform the services, how they perform the services, and who they may hire to assist them in performing the services, is another important factor in achieving a determination that the individual is an independent contractor. Independent contractors should also use their own tools or materials and perform the services at their own location or office, if possible. The company should never mandate exactly when an individual must show up for the job or when to leave. The company should not require the independent contractor to follow all of its employment rules or guidelines. If there are safety guidelines that are required by law to follow, then that doesn’t fall under company guidelines, but if the company has rules that are not mandated by law, these may be considered company rules or guidelines. The company should never dole out, to an independent contract, discipline of a type that would be similar to what would be given to an employee who failed to comply with those rules or guidelines.

If the company has employees that perform tasks, then an independent contractor should not be engaged to do similar work.  The agreement should identify that the contractors are responsible for their own expenses, including but not limited to mileage, tolls, phone and Internet, particularly if the business reimburses those expenses to its employees. If litigation occurs, businesses should obtain the tax returns for these individuals to determine whether or not they deducted these business expenses on their tax returns.

Companies should pay for the work performed and avoid paying their engaged contractors a static, weekly payment, for the performance of their services. The more that it looks like a salary and that the individual is receiving all of his or her pay from one source, the more it looks like the individual is an employee. Companies should strive to pay just for the job performed, which would ideally be accompanied by an invoice submitted by the contractor for the services performed. Similarly, companies should not disallow work for other companies but should support the individual’s pursuit of other contracts with other businesses, as that further supports the fact that the individual is truly independent.

Above all other considerations, consistency in demonstrating that engaged independent contractors are treated differently from hired employees and that they are, in fact, independent in the manner and method in which they perform services will go a long way to defeating potential allegations of misclassification of workers.

If the Uber ruling stands, many companies will need to reassess their classifications and determine how to best protect their interest. Only time will tell if the ruling will stand.