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Insights and Expertise

vacation pay? Is the work done part of the or-
dinary activities of the business (for example,
merchant services sales) or is the work outside
the ordinary activities of the business (for ex-
ample, window cleaner)?

What if a business gets it wrong?
The most common error by businesses is to incorrectly
characterize an employee as an IC. Businesses and
employees alike are tempted to make this mistake—
each for their own reasons. Businesses enjoy fewer
expenses and less paperwork for ICs versus employees.
Meanwhile, employees sometimes prefer to be
characterized as ICs because then they can deduct
expenses (computers, gas, phone bills etc.) from their
taxable income.

Despite how tempting it is to let this slide, businesses
must make a sincere effort to get this right. The
consequences of getting it wrong can be costly for the
business because it may have to pay fines as well as
back payments of deductions together with interest etc.

The consequences for employees can also be costly
because they may retroactively lose the benefit of
deductions from their taxes made for expenses that
were actually personal expenses.

Cultural update required

Payments businesses, such as ISOs, have assumed
for years that anyone who signs an IC agreement
is an IC. This is not correct. In a number of states,
including Massachusetts, California and Washington,
the definition of "employee" has been widened by new
law. These changes could substantially impact ISO and
other payments business operations.
Get legal advice

Labor law varies from state to state. For the best advice
on the line between employee and IC, a business
should consult a local lawyer in the state where they
are located as well as in the states where they propose
to have ICs or employees.

All businesses take risks. Many payments businesses
take risks when deciding whether a worker should
be classified as an IC or an employee. It's OK to take
risks, but it's best to take them with the benefit of legal
advice on what those risks actually are and what their
repercussions are likely to be.

In publishing The Green Sheet, neither the author nor the publisher
are engaged in rendering legal, accounting, or other professional
services. If legal advice or other expert assistance is required, the
services of a competent professional should be sought. For further
information on this article, please contact Adam Atlas, Attorney at
Law email: atlas@adamatlas.com, Tel. 514-842-0886.

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