Independent Contractor Compliance Blog - by Collabrus™

The two thousand plus page Health Care and Reconciliation Bills are complex and rich with provisions that will take time to be fully discovered. Many of the provisions create additional costs. For example, the law requires employers to provide health insurance for their employees or face harsh penalties. However, the law also provides some opportunities for your company to save money.

For example, effective for tax years beginning after December 31, 2009, the bill allows employers (with 25 or less employees) to receive a tax credit against the health insurance premiums. To read more about this provision see my recent article entitled, “Health Care Bill provides a conditional credit for small employers.”

Can this provision apply to you if you have more than 25 employees?

Possibly-there are two ways that I can see to do this, but one is very risky.

They are:

1. Make those who would push your company over the 25 employee limit independent contractors.
2. Use a contingent workforce services company, such as Collabrus, to employ your temporary workers so they do not count against your 25 employee limit.

Let’s look at each of these options:

Option 1-Make them all Independent Contractors

In this option, you make anyone who would push you over the 25 employee limit an IC. If they aren’t an employee they don’t count towards the limit. So under this option you have 25 (or less) admitted employees and would claim the credit, because you made everyone else an IC.

This is a very risky option, since it will almost certainly lead to an IRS and state audit with taxes assessments, penalties and fines. In addition, if the IRS decides you were being fraudulent in classifying these workers as IC’s for the purpose of receiving a tax credit the consequences could be very serious. The IRS and local tax agencies are stepping up their IC compliance efforts to generate more revenues and to get all Americans (employee or IC) on their tax radar scope (see my recent articles on these topics). This option would be waving a red flag at a very dangerous time. You can not just magically re-title you employees and make them independent contractors. I do not recommend this option.

Option 2-Use a company, such as Collabrus, to legally employ your temporary staff and validate your IC’s.

Under this option you engage a reputable company such as Collabrus to properly classify and employ all of your contingent workers so they legally and honestly become Collabrus’ employees, assigned to provide services for your company.  We can also help mitigate the risk of IC misclassifications from an IRS or a state enforcement agency challenge.

When done correctly this option allows you to keep your number of employees at 25 or under, so you may claim the small employer credit.

Under this option:

• Your contingent workers would become Collabrus employees.
• Collabrus would properly withhold, pay taxes on and report these employees as its own.
• Collabrus would provide a superior employee package that includes qualifying health care, 401(k) retirement plan and other benefits.
• Collabrus would help you properly classify your IC’s so they are correctly and legally classified.
• If you wish, we can even administer the IC’s contracts through our state of the art management information, tracking and reporting system.
• If a consultant does not qualify as an IC under state and federal rules, then we can put them on our payroll as an employee.

Act now

With option 2 you can have your workers and a tax credit too. Don’t waste time.  The tax credit for small employers is effective for tax years beginning after December 31, 2009. The requirement to provide health insurance is law and so is the tax credit if you qualify. Take advantage of both today.