Post on 26-Dec-2014
description
1099 Contractor Compliance Program
The recipient of an Independent Contractor’s services is responsible for providing evidence of an IC being properly classified, not the IC.
Adecco USA - Proprietary and Confidential
Causes for Reclassification Enforcement
• Department of Homeland Security• Identify undocumented workers• Recent eVerify legislation enforces worker authorization• Applies to all Federal Contractors
• Department of Labor• New Administration is extremely ‘labor friendly’
• IRS• 2007 program rewards IC compliance whistleblowers• Announced 6,000 IC compliance audits
• IRS estimates it loses $300+B in tax revenue on unreported income
• U.S. House of Reps & U.S. Senate• Taxpayer Responsibility, & Consistency Act introduced in 2009
• President of the US• Proposed federal budget for 2011 includes $25M for “Misclassification Initiative”
• Expected to increase tax revenue by $7B over 10 years• $8B for the IRS to focus on “critical areas of non-compliance” enforcement over next 5
years
Adecco USA - Proprietary and Confidential
Contractor Classification
IRS “20 Point Checklist” focuses on 3 Main Factors:
• Behavioral Control – how much control the employer has over the worker’s behavior and work results
• Financial Control – how much control the employer has over finances. Is there any risk of loss? It this project/customer their sole income?
• Relationship between the parties – How long is this relationship? Is there a completion date?
Adecco USA - Proprietary and Confidential
IC Classification Process – Data Gathering
Documentation requirements
• 20 Factor Test with independent validation control• TAX ID Certificate• Articles of Incorporation (if applicable)• W-9• Responses to IRS 20 Questions (both the potential independent contractor and
the end-user)• Certificate of Insurance• Letter to Insurance Carrier (notification of change in policy)• Consulting Agreement• Statement of Work• Confidentiality Statement• Evidence of business operations such as stationery, business card, website
URL, etc.
Adecco USA - Proprietary and Confidential
Estimated Amounts of Risk*
• Worker misclassification where the misclassification is not attributable to intentional
disregard of the tax rules. A 1099 is filed and documentation exists to support the IC
status.
• 11% of salary paid penalty plus interest*
• Worker misclassification where the misclassification is not attributable to intentional
disregard of the tax rules and there is support for the IC classification. A 1099 is not filed
due to reasonable cause.
• 12.5% of salary paid penalty plus interest*
• Worker misclassification where the misclassification is due to intentional disregard of the
tax rules, e.g. no classification procedure exists, the employer can be assessed penalties
for failure to withhold, employer & employee share of FICA, etc.
• 13%-66% of salary paid penalty plus interest*
• Approximately 90% of ICs interviewed / vetted from Adecco Customers under our IC
program were converted to W2 status.
*An internal analysis of our risk from Adecco’s Tax / Legal department. Provided as a benchmark to assess risk based on current procedure / process / practice.
Adecco USA - Proprietary and Confidential
Independent Contractor/1099 Compliance Program
IC Realignment
Adecco Solution Benefits
Expertise
Extensive defined vetting process
Financial Oversight
Change Management
Mitigation of Risk
Insurance & screening compliance
Supporting documentation
Proper Worker classification
Active rate negotiations
Spend visibility for all servicesStreamlined Process
Consolidated invoicing & reporting
Quality control
Administrative Support
Solution for non-qualified vendors
Adecco USA - Proprietary and Confidential
1099 Classification / Qualification Timeline
Week One - Classification
Week Two - Qualification
Documents are
reviewed & submitted to Tax and Risk
Day 2-3 Day 3-4
AP Vendor Set Up
Day 3-4
Client & WorkerConfirmation
Day 5Day 1-2
Worker SubmitsDocumentation
Tax Determination & Acceptance
Interview set
& Instructions sent
Day 1
Interview conduct with Worker & Manager
Day 2-4
Results sent to data team
Day 4 - 5
Determination
Delivered
Day 5
1099 Worker Identified