Independent Contractor or Employee
One of the many consequences of the changes to our tax system in 2018 was the creation of incentives in areas that previously did not exist. Included in this discussion is the classification of an employee versus an independent contractor. The “Section 199A” deduction allows pass-through entities to exclude up to 20% of their earnings from taxation. An independent contractor has the ability to potentially take this deduction while almost all employees cannot.
Both Federal and state governments have recognized this as a significant audit issue in the past, and we expect this to be an even larger “hot topic” moving forward due to the Section 199A deduction. Employers are at risk for misclassification of employees through random audits, workplace injury when the worker does not have workers compensation coverage but believes they should have, or even layoffs if the worker tries to apply for unemployment coverage. In the latter two examples, the state may step in to investigate the situation.
The state of New Jersey has a straightforward assessment to determine whether the worker is an employee or independent contractor. If the following three questions can be answered “yes”, the worker is an independent contractor. If any question is not a “yes”, the worker should be classified as an employee.
1. Has the worker been and will continue to be free from any control or direction over the performance of services both under his/her contract and in fact?
2. Is the service outside the usual course of the business for which it is performed, or is it performed away from its business?
3. Is the worker customarily engaged in an independently established business that is of the same nature as that involved in the service?
These questions can also be used to assess worker classification for Federal or other states outside New Jersey. The penalties for violations in this area can be very severe and have a strong negative impact on your business or trade. If you have any questions on this classification, please reach out to our professional staff. Our experienced professionals can address this, or any other questions you may have.
Did You Know?
Any vacant job positions at GCS are posted on our website. Below you can find more information regarding these postings: https://www.gcs-cpa.com/careers
Meet Our Team
Kenneth Benkovic, CPA is a Director at Gramkow, Carnevale, Seifert & Co., LLC and a trusted advisor to his clients. Ken joined GCS in 2003 and provides accounting and assurance services for clients in various industries, with specialization in family-owned and closely-held businesses, not-for-profits, and employee benefit plans. Ken’s professional experience has been exclusively in public accounting, with over 20 years of experience providing accounting, auditing, taxation, and management advisory services. Ken is a proactive, highly responsive relationship-driven professional dedicated to providing the highest level of client service.
Ken is a Certified Public Accountant licensed in New Jersey and New York. He advises the boards of directors, trustees and management of various privately held companies, not-for-profits, and employee benefits plans on various matters of regulatory compliance, financial and tax reporting, accounting systems, internal controls and operational effectiveness and efficiency. Ken is an expert and resource to his clients and the firm on matters of accounting, financial reporting and assurance.
Ken earned his Bachelor of Science – Accounting degree at Rutgers University in 1989. Ken has held positions in various professional societies and service organizations over the years and is active with the New Jersey Society of Certified Public Accountants accounting and auditing and not-for-profit interest groups. Ken is also an active member of CPA Associates International, a leading association of independent public accounting firms, and he has served on various CPAAI niche services committees. Ken is a member of the firm’s Assurance Committee, serving as coordinator. Ken is a founding member, officer and director of a local not-for-profit youth baseball organization and enjoys volunteering with local youth sports programs and community activities.