There are only two legitimate classes of workers in the great State of Montana: Employees and Registered Contractors.
Yes — that is a Period.
A recent communiqué from one of the national Payroll Services identifies four areas receiving vigorous audit activity:
- Worker Classification Issues
- Fringe Benefits
- Reimbursed Expenses
- Compensation of Owner-Employees
Every business is at risk for increased scrutiny.
These issues are at the forefront of a Federal Government effort to raise billions through tighter enforcement. On a local level, the Montana Department of Labor and Industry is the auditing arm of the Government’s long reach.
From a recent CNNMoney.com article:
The IRS audit program is just the beginning of what will be “a new era of compliance,” says Gene Zaino, president and CEO of MBO Partners, a services firm that specializes in the independent contractor market. “Most states are now sharing data with the IRS, and many have set up task forces specifically [to address] misclassification. It used to be that if a business ran into trouble with a state labor department or with the IRS, the issue was isolated. Now, any kind of audit or compliance finding can set off a domino effect where the other agencies will get in on the action.”
Simply stated: The action is less than pretty, unless you are prepared and in compliance.
As a business owner in the State of Montana, you have two choices:
- Hire employees, pay required taxes, and provide legitimate benefits.
- Contract with individuals who can provide their Independent Certificate.
If you choose Option 2, the fun begins here: Independent Contractor Central Unit
A related Link on the right side of the Website above can be used to determine whether an individual is, indeed, registered. Or, click here for Independent Contractor Search.
For those individuals who need to register the Independent Contractor Exemption Certificate Affidavit with the State of Montana, click here for Application.
Dovetailing with this Worker Classification issue are two other facets of compliance:
- Reasonable Compensation
- Form 1099-MISC Reporting
For those businesses employing Officer-Shareholders, the odds are good that an auditor’s definition of “Reasonable Compensation” is anything greater than the Montana Unemployment Insurance annual taxable wage base. For the year 2014 that amount is $29,000. If owner-employees of the business are being paid less than that amount, be prepared to explain, “Why.”
Stealth IRS changes came close to requiring, starting in the year 2013, that all business payments for services, or purchases of goods, exceeding $600 in a calendar year, on a per Vendor basis, to be reported to the Internal Revenue Service on Form 1099-MISC. Since the law was changed before implementation, the only question is, “How long before we are required to play the game with this new set of rules?” Research has estimated the average cost for the typical small business to prepare these forms at $6,000 per year, if done manually.