Making the Determination: Employee vs. Independent Contractor. It is critical for business owners to correctly determine the status of service providers as employees or independent contractors. In making this determination, you must first understand the relationship between your business and the service provider as it relates to the degree of control and independence. Internal Revenue Service (IRS) guidelines identify three categories of attributes that provide evidence regarding the nature of this relationship as follows:
- o BEHAVIORAL: Employee/Employer relationships generally involve more control over the work performed and the manner in which it is performed including the type of work, the location where the work is conducted, and the timeframe in which it must be carried out.
- o FINANCIAL: The financial aspects to consider between the business and the service provider include, among other things, how the worker is paid (including the terms agreed upon for payments), reimbursement of expenses in connection with completing a job, and the party providing tools and/or supplies to perform the service.
- o NATURE OF RELATIONSHIP: The nature of the relationship between business owner and worker provide important evidence that can assist in making the proper determination between employee and independent contractor. The attributes to identify regarding the nature of the relationship include the presence of written contracts between the parties, the possibility of the worker to receive (or being eligible to receive) employee benefits immediately or in the future (i.e., health insurance, vacation pay, sick pay, and retirement plan compensation), the duration and continuity of the relationship, and the overall importance of the work performed to the business.
Conclusion. Determining the status of workers as employees or independent contractors is an imperative classification that will affect the manner in which your business compensates these service providers. Unfortunately, objective criteria is not available to assist business owners in making such an important decision. Business owners must evaluate the relationship between parties independently, taking into consideration the unique attributes identified above, in arriving at the proper classification of their workers. Ultimately, the employee/employer classification involves business owners having more control over the manner in which workers perform their jobs with the service provider having less independence in carrying out their responsibilities
Payroll Tax Compliance Set-Up. Upon determining a company has employees, it is imperative for it to register with regulatory agencies governing the environment in which it operates. For example, businesses employing workers in Louisiana are required to comply with employment rules and regulations as follows:
- o INTERNAL REVENUE SERVICE (IRS) – In complying with federal law (overseen by the IRS), employers must register with the IRS to receive an employer identification number (EIN) and to establish withholding tax status. Applying for this purpose may be accomplished by either of the following steps:
- Preparation and submission of IRS Form SS-4, Application for Employer Identification Number (please make the underlined text an internal hyperlink to the “IRS Forms & Publications” section of this website) by mail, or
- Electronic registration at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online. Select the Apply Online Now option within box three (3) titled “Submit Your Application” and complete the step-by-step questionnaire that follows.
- o LOUISIANA DEPARTMENT OF REVENUE (LDR) – Upon registering with the IRS, employers are required to apply for a “Withholding Tax” account with the LDR by completing the application (LDR Form number R-16016) at revenue.louisiana.gov/forms and mailing it to the address identified at the top of the page.
- o LOUISIANA WORKFORCE COMMISSION (LWC) – Electronic registration is mandated by the LWC, and previous registration with the IRS and LDR must be completed prior to applying for an unemployment insurance account. The Employer Application for LA Unemployment Account process and the information required to complete this application can be found at www.laworks.net/lastatusreport/register.
Withholding & Remitting Payroll Taxes. Upon completion of the registration process, an employer is ready to employ and compensate its workers. In general, an employer with a Louisiana workforce is responsible for withholding and remitting employment taxes to the following regulatory agencies:
- o INTERNAL REVENUE SERVICE (IRS) – The IRS imposes income tax, social security, medicare, and unemployment insurance on wages paid to employees for performance of their duties. Employers are required to withhold a portion of these taxes and remit them to the government on a pre-determined basis as determined in IRS Publication 15, Employers Tax Guide (hyperlink these words to “IRS Forms & Publications” section of the website). Three (3) methods of depositing employment taxes are available to employers, as follows:
- Paper Check. Employers can submit a check with IRS Form 941-V to the address provided at the instructions to IRS Form 941, Employers Return of Employment Taxes (corresponding to the geographical location of the business).
- Online or by Telephone. This method of depositing payroll taxes requires an additional registration with the IRS. An employer can visit www.eftps.gov and complete the application by submitting information such as the name of the financial institution, routing number, and account number.
- Transmission by Employer’s Financial Institution. Certain financial institutions transmit tax payments to the IRS as a service to their clients. We recommend checking with the financial institution in advance to find out if this option is available.
- o LOUISIANA DEPARTMENT OF REVENUE (LDR) – The state of Louisiana imposes income tax on employee wages. Employers are required to withhold this tax from employee paychecks and remit it at regular intervals as instructed by the LDR. Remittance intervals are communicated to the employer upon registering with the state. Remitting income tax withholdings can be accomplished through the following two (2) methods:
- Paper Check. Employers can submit a check with LDR Form L-1 to the address provided on this form.
- Online Deposits. Employers can utilize the LDR’s online system, LaTAP (Louisiana Taxpayer Assistance Program), to electronically deposit payroll taxes. At www.rev.state.la.us, select the “LaTAP” option under the “For Businesses” section of LDR’s homepage. Next, click on “Register for a LaTAP Account” within the “Log-In to Your LaTAP Account” portion of this page (middle right-hand portion of the screen).
- o LOUISIANA WORKFORCE COMMISSION (LWC) – The state of Louisiana also enforces unemployment insurance as a percentage of a fixed amount of employee wages. Employers are solely responsible for this tax (i.e., employers should not withhold money from employee paychecks to cover liabilities). Two (2) payment options exist, as follows:
- Paper Check. Employers can submit a check with a voucher (produced from the LWC’s website) to the address provided on the LWC’s website.
- Online Deposits. Employers can also make payments electronically by registering with the LWC at www.laworks.net, selecting the “Online Services” followed by clicking on “File Wage & Tax Reports” under the “For Businesses” section, and selecting the “Wage Reporting” hyperlink of the “Submit Wages”. Next, click on the “Create EMPLOYER login Account” option underneath the “New Users” section of this page.
Reporting Requirements. Employers are required to report wages paid and taxes withheld from employee earnings at regular intervals throughout the year. In general, Louisiana employers must file payroll reports with government agencies each quarter and at year-end, as follows:
Quarterly Reporting Requirements
|Government Agency||Reporting Form No.||Reporting Form Title|
|IRS||941||Employer’s Quarterly Federal Tax Return|
|LDR||L-1||Employer’s Return of LA W/H Tax|
|LWC||???||Employer’s Quarterly Wage & Tax Report|
Annual Reporting Requirements
|Government Agency||Reporting Form No.||Reporting Form Title|
|IRS||W-2||Wage & Tax Statement|
|IRS||940||Employer’s Annual FUTA Tax Return|
|LDR||L-3||Transmittal of Withholding Tax Statement|