Rental
and staging companies, as well as tour sound and satellite uplink companies,
now face an imminent insurance risk that could potentially cost them hundreds
of thousands of dollars in penalties. As the federal and states governments’
budgets continue to shrink, they are becoming increasingly eager to find
additional sources of tax revenue — and maximizing the effectiveness of current
tax regulations is one way to achieve this objective.
According
to Take1 Insurance Executive Vice President and Program Director Scott Carroll,
“Rental and staging, tour sound, and satellite uplink owner/operators have
always relied heavily on 1099 independent contract workers. But by all reasonable IRS and Department of Labor
(DOL) definitions, the vast majority of today’s 1099 workers do not meet the
requirements that determine who qualifies as an independent contractor. Now a growing number of
states, along with the IRS and the DOL, are taking a hard look at companies who
utilize the 1099 tax form for their employees, specifically to determine how
1099 workers are utilized and instructed versus how they are classified on tax
forms.
“In
California, for example, as of January 1, 2012, when the California Department
of Labor determines that a 1099 was misclassified, the employer can be slapped
with a fine ranging anywhere from $5,000 to $15,000, and all the way up to
$25,000 if it is determined that the misclassification was intentional and used
to avoid liability for workers compensation payments.”
Indeed,
the time has now arrived when companies that may be affected are going to have
to do what companies in the film and TV production industry have already
done—begin classifying workers as “temporary employees” rather than 1099
independent contract workers. This change is going to increase the cost of
doing business for the affected companies, as the more comprehensive
regulations being deployed will create new tax obligations for the
companies. However, companies who think
they can get away with improper filings and do not ensure all employees are
classified correctly will face the possibility of paying major fines in
addition to being held responsible for the unpaid taxes.
How
does a company owner find out if they should file a worker as a 1099
Independent Contractor or as a Temporary Employee? To start, employers can ask the IRS to make a
determination on whether a specific individual is an independent contractor or
an employee by filing form SS-8, Determination of Workers Status for Purposed
of Federal Employment Taxes and Income Tax Withholding, with the IRS.
“Basically,
it comes down to a couple criteria they use to determine the accurate tax
status of an employee, and it is addressed on a case-by-case basis,” Carroll
said. “To start, if the business owner has the right to directly control how
the work is done through instructions, training or other means, the workers are
most likely Temporary Employees. If
however, the owner can direct or control only the final result of the work, and
not the means or methods of accomplishing the result, the workers are probably
Independent Contractors. Additional
factors include whether the business has a right to direct or control the
financial and business aspects of the worker’s job, and how the workers and the
business owner perceive their relationship.”
U.S.
Risk’s entertainment arm, Take1 Insurance, which has specialized in insuring
the live and non-live entertainment industries for more than 25 years, is
studying this issue on behalf of its thousands of insured who utilize 1099
workers in an effort to provide them with guidance and help them adapt to the
changing regulations. The company has
connected with the premier payroll services provider, CAPS Payroll Services, to
begin working on a turnkey solution to help rental and staging company owners
protect against long-term liability while minimizing the inevitable increase to
their cost of doing business.
Carroll continues, “With
this increase in tax law enforcement across the country, the implications for
rental and staging business owners are astounding. Owners who may not even know they are at risk
of exposure to fines and additional tax burdens could find themselves owing up
to hundreds of thousands of dollars to the state or the IRS, and that is surely
enough to disrupt or bankrupt a company. Because of this, Take1 is working with
CAPS Payroll Services to develop a turnkey solution that will help our clients
ensure they meet the proper tax guidelines and avoid hefty government
penalties.
“Normally, an employer
would be responsible for their employees insurance claims if they are injured
on the job and receive workers’ compensation.
This could cost the owner a large sum through higher insurance premiums
or put the policy at risk. The payroll
services we provide greatly lighten the company owner’s liability load by
taking over IRS and compliance responsibility as the workers’ Employer of
Record, and by handling the workers’ compensation responsibilities. This effectively isolates the temporary and
independent workers from the staff labor.
So, if there is an injury among the temporary or independent workers,
the insurance claim is spread over $1 billion worth of payroll, whereas the
production company could be affected negatively if the workers’ compensation
claim was handled under their own insurance, resulting in higher premiums or a
policy cancellation.”
Payroll services aren’t
free, and using one will likely cause labor costs to rise, but the decision to
utilize a payroll service is the smart choice in light of the enormous exposure
a company could face if they are audited by the IRS. Owners can do one of two things: Operate
according to the new, changing regulations and comply with the tax classification
requirements in order to steer clear of any problems, or they can skirt the
issue and wait for the taxman to inevitably come calling. By converting independent contractors to
temporary employees, companies can eliminate long-term liability while lowering
short-term liability costs.
The film and television
production industries rely heavily on temporary labor and therefore utilize
payroll services extensively. That way
they protect themselves from unforeseen costs and tax burdens and avoid
blemishing their own insurance policies at the same time. For tour sound, satellite uplink and rental
and staging companies who want to be successful and experience growth in 2012
and beyond, these tax exposures need to be addressed, and using a payroll
service provider is the easiest, most surefire way to guarantee everything is
being done by the books and the company is free of risk.
About U.S. Risk Insurance Group
U. S. Risk Insurance Group, Inc. is a
specialty lines underwriting manager and wholesale broker headquartered in
Dallas. Operating 12 domestic and international branches, it offers a broad
range of products and services through its affiliate companies, which include
U.S. Risk Underwriters, U.S. Risk Brokers, Lighthouse Underwriters, LLC,
Professional Claims Managers, Omnisure Consulting Group, Oxford Insurance
Brokers, Ltd. (London), Goss Reinsurance Brokers, LLC, and NovaPro Risk
Solutions, LP. Its entertainment
division, Take1, has served as the official
endorsed insurance provider for the last 15 years INFOCOMM, the leading
association of A/V communications industry professionals.
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