An Internal Revenue Service initiative announced earlier this month could spur independent sales organizations and merchant acquirers to assess how they classify their staffs, Holli Hart Targan, president of the Electronic Transactions Association, noted at the Southeast Acquirers Association conference this week in Atlanta.
The IRS plans to audit 6,000 businesses to determine whether they have properly classified workers as employees or independent contractors, Targan says.
“It all comes down to money,” Targan says. Businesses pay payroll taxes and other employment taxes for employees and do not have as many tax obligations for independent workers.
Misclassified employees could cost employers back wages, overtime and interest on these amounts, says Targan, an attorney at Jaffe Raitt Heuer & Weiss, a Southfield, Mich.-based law firm.
In an August report “Employee Misclassification: Improved Coordination, Outreach and Target Could Better Ensure Detection and Prevention,” the Government Accountability Office said the IRS estimated that in 1984, about 15% of employers misclassified a total of 3.4 million employees as independent contractors. The IRS last studied misclassification in the 1984 tax year. An IRS representative was not available to comment by ISO&Agent Weekly’s deadline.
There is no reason to suspect the acquiring industry is immune from the IRS inquiry, Targan says.
Part of the audit will involve how the worker’s functions match against a 20-part test the IRS uses to help determine whether someone is an employee or an independent contractor. The IRS will look at many factors, not just the 20-part test to determine a worker’s status, Targan says.
Targan highlighted three parts in particular that ISOs and acquirers should evaluate: training, who profits or sees a loss, and whether someone on staff is able to work for multiple firms concurrently. “You need to look at contracts and the totality of the relationship,” she says.
