Tax Newsletter

• Taxing Savings From Discharged Debts
  When you obtain bankruptcy relief, you are essentially receiving a financial benefit, because most, if not all, of your debts will be wiped away. The tax consequences of debt relief differ greatly depending upon whether the debt is... Read more.
• Deductions for Business Conducted on Cruise Ships
  It is common to conduct business on luxury travel vessels such as ocean liners and cruise ships. However, only in certain situations are some or all business expenses related to this type of travel deductible. Luxury... Read more.
• Estate Valuations and Federal Estate Taxes
  Assets owned by a person at the time of their death, whether real or personal property, is commonly referred to as the decedent’s “estate.” After the person dies, the property or proceeds from the sale of such property... Read more.
• Federal Estate Taxation and "Special Use" Valuation of Certain Properties
  Calculation of the Value of Estate Assets Estate taxes are calculated based upon the value of the assets in the estate. One duty of the executor or administrator is to inventory all estate assets and assign a... Read more.

• These 3 tax moves will help you save, regardless of who wins the election
• New Hampshire brings income tax dispute with Mass. to Supreme Court
• Trump takes tax battle back to Supreme Court
• Lawsuit Filed Over Graduated Income Tax Ballot Measure
• New York Times: Trump paid no income taxes in 10 out of 15 years beginning in 2000

Employer Benefits Associated With Leased Employees

Over the past several decades it has become increasingly expensive to hire and maintain employees. A large part of the expense relates to government programs and reporting requirements, but accounting costs related to employees have also risen. Small businesses have been especially hurt and have sought ways to reduce costs.

One method of reducing costs has been to hire independent contractors instead of employees. Theoretically, independent contractors are not employees. For this reason, hiring independent contractors may allow an employer to avoid employment requirements and regulations associated with hiring regular employees (such as workers’ compensation insurance, payroll withholding requirements, and related employment taxes).

Independent Contractor or Employee

Employers frequently attempt to label employees as independent contractors in order to escape the duties and responsibilities they would otherwise owe if the individual were characterized as an employee. In many instances, however, the U.S. Internal Revenue Service (IRS) attacks the characterization of “independent contractor” status.

The IRS uses a variety of “factors” to determine a worker’s true status. Most focus on the control exercised by the employer over hours, where and how the work must be done, supervision, quality control and other factors. When the IRS is successful, the employer may be required to pay any unpaid back payroll taxes and any penalties for such unpaid taxes.

Temp Agencies and Professional Employer Organizations

An alternative has been to use “temp” agencies. Such agencies employ workers and send them to work for others on a temporary basis; the worker remains an employee of the temp agency, relieving the employer of many duties. A similar, more recent phenomenon are professional employer organizations (PEOs). PEOs commonly become the employers and “lease back” the company’s employees on a long-term basis.

PEOs that “lease” employees to customers may then be able to procure things such as group benefits and workers’ compensation coverage at reduced rates, due to their larger numbers of employees. To induce employers to utilize their services, PEOs, in effect, pass some of these savings along to employers/customers who lease workers from them. The PEOs also usually handle payroll and other accounting services for leased employees at significant savings to the employer. Leased employees typically cost more than independent contractors, but less than full-time employees.

Risks of Using Leased Employees

As a practical matter, if employment and/or tax laws are violated, the employers using PEOs may also be held liable as “joint employers.” In addition, even though a leased employee is not technically on the employer’s payroll, the employer may still be legally obligated to provide a safe and harassment-free workplace and avoid illegal discrimination. Thus, not all duties owed by an employer to an employee are eliminated by using a PEO.

Employers may be able to decrease the risk of being considered “joint employers” with their PEOs by limiting supervision and control over leased workers and avoiding using such employees for extended periods of time. A clear contract that specifies each worker’s role and status as a leased employee may also help. In addition, employers should ensure that correct comprehensive general liability and workers’ compensation insurance are maintained by the PEO. In the final analysis, however, it may be very difficult for an employer to avoid certain liabilities, such as responsibility for unpaid payroll taxes.

PEOs are regulated by law in many states, and Congress has also considered a number of measures to regulate and clarify their status. Further legal limitations and requirements related to using a PEO may therefore exist.

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