Ensuring compliance with unemployment insurance and tax withholding rules is an important part of operating a construction company. Many companies are drawn to the allure of identifying individuals as subcontractors to avoid the additional overhead burdens associated with designating a person as an employee. Although designating workers as 1099 subcontractors may make your company bookkeeping easier at the moment and make your company appear more profitable, it could lead to serious legal and financial troubles if an audit makes an employee determination.
Government Audits & Penalties for Violations
Colorado’s Department of Labor and Employment often performs audits on companies to ensure the rules are being followed. The Division of Unemployment Insurance may request information and documentation from a company and its employees. If the rules are not followed, the Division of Unemployment can determine that individuals designated as independent contractors are actually employees, not subcontractors.
When that happens, the general contractor is notified that it is liable for unpaid unemployment insurance premiums. This may spur state tax collectors to also demand payment for employment taxes. Although there is an appeals process, it is much better to ensure compliance at the outset of a relationship with individuals rather than trying to fit into the rules after the fact. If you have been audited and are currently within your appeals timeframe, contact Jorgensen Brownell & Pepin, P.C. immediately to ensure you have an adequate response to the determination of liability. Our Longmont employment audit attorneys can help you avoid or minimize complications and potential penalties.
Who is an Employee & Who is an Independent Contractor?
There are many factors used in determining whether a person is an employee or an independent contractor. (See C.R.S. § 8-70-115.)
A few general rules are that independent contractors:
- Should be regularly engaged in their trade and cannot be forced to work exclusively for your company
- Should not be paid a salary or hourly rate
- Should not be directed or overseen by your company.
These are a few of the basic rules to follow, but the complete list of rules is too large to fit within the confines of this blog.
The business and construction attorneys at Jorgensen, Brownell & Pepin, P.C. understand the significance of properly identifying the individuals that work on your projects and can clearly articulate the rules for your understanding. We can provide your company with strong independent contractor agreements, represent you in front of the industrial claims appeal office, or simply take the time to answer your questions. Give us a call at (720) 809-8310 to speak with a trusted business and construction attorney today!