The question of Independent Contractor versus Employee is coming up again.  We’ve brought this up with several clients in the past, but we feel it is imperative that we bring it up again.  While this email may seem to be overkill, we want to alert you that the GA Department of Labor is currently performing ‘random’ audits to identify possible employees lurking in your sub-contractor pool.  Below, you will find the criteria from the IRS and the State of GA regarding the classification of an Independent Contractor.  As you can see, it is difficult to meet all the factors.

Why is GA auditing?  Because, over the years, a lot of contractors have applied for unemployment benefits and GA wants YOU to pay for those benefits.  How?  By listing them all on your quarterly DOL report, thus paying into the fund for each contractor. 

What is the cost of listing your contractors?  It is based on earnings up to a maximum of $9500 per year per person and payable at your current SUTA rate.  So, if your rate is 2.70% (standard for new businesses), it would be a cost of $256.50 per contractor each year.  If your rate is the lowest possible, or 0.04%, the cost would be $3.80 per contractor per year.

If you are audited and GA determines that your contractors are indeed employees, you will pay penalty and interest in addition to the SUTA charges on each person PLUS any additional fines as noted in the GA section of this email; the DOL may also open the audit to other years and increase your costs.  We don’t want to see that happen. 

Also, just because your contractor states they are an LLC, does NOT automatically exempt you from DOL tax; only S and C Corporations are exempt.  Georgia DOL can classify these people/companies (LLCs) as taxable.  You must have a W9 on file.  We have been working hard through the years to make sure we have a copy of those in our files, but again, that will not automatically get you out of the DOL requirement.

Please read the information below.  We can’t force you to include your contractors on the quarterly DOL reports, but we certainly recommend it, especially in light of the new specifications they are using to try to bring more people in to be taxable. 

If you have questions, please give me a call to discuss. 

From the IRS

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid**, whether expenses are reimbursed, who provides tools/supplies, etc.) **how the worker is paid – by the hour or by the job (emphasis from GAD)
3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship and consider the extent of the right to direct and control the worker. Finally, document each of the factors used in coming up with the determination.

From Georgia

Effective July 1, 2022, Georgia House Bill 389 amended its Code Section 34-8-35 for determining whether a worker is an Independent Contractor or an employee under its Employment Security Law; it now examines the nature and scope of the individual’s work, rather than purely relying on the control exercised to determine the existence of an employer-employee relationship. Under the new law, seven factors are considered in making this determination:

1. Ability to work for other companies or hold other employment at the same time;
2. Freedom to accept or reject work assignments without consequence;
3. No minimum hours to work, or in the case of sales, no minimum number of orders to be obtained;
4. Discretion to set his or her own work schedule;
5. Receipt of only minimal instructions and no direct oversight or supervision regarding services to be performed, such as the location where the services are to be performed and any requested deadlines;
6. No territorial or geographic restrictions; and
7. No requirement to perform, behave or act or, alternatively, being compelled to perform, behave or act in a manner related to the performance of services for wages.

This means a worker is presumed to be an employee unless the worker is:

• Customarily engaged in an independently established trade, occupation, profession or business; and
• Has been and will continue to be free from control or direction over the performance of services for wages, both under the worker’s contract of service and in fact, as demonstrated by certain factors.

Said chapter is further amended by adding a new Code Section 34-8-257 to read as follows:

• (a) Notwithstanding any other provision of law and in addition to any other penalties, fines, or offenses prescribed under this chapter, an employing unit that violates this chapter by failing to provide any contributions or administrative assessment owed for individuals whose service is described in subsection (f) of Code Section 34-8-35 shall pay to the Commissioner a civil penalty.
• For employing units with less than 100 employees, as determined by the Commissioner, the civil penalty shall be in an amount not to exceed $2,500.00 for each such individual.
• For employing units with 100 or more employees, as determined by the Commissioner, the civil penalty shall be in an amount not to exceed $7,500.00 for each such individual.
• In determining the amount of the civil penalty to be imposed, the Commissioner shall consider such factors as the number of individuals not properly classified such that the contributions and administrative assessments were not paid and the frequency of improper classifications by such employing unit.