The Importance of Classifying Workers

Recently, the IRS released a fact sheet to help remind small businesses of the importance of correctly classifying workers. Sometimes IRS lingo can be complicated, so we broke it down for you.

Let’s start with the question that’s probably going through your head – why does this matter?

When you classify your workers, this can help determine if you need to withhold income, social security and Medicare taxes. It also helps determine if you actually have to pay these taxes on employee wages. When it comes to independent contractors, businesses usually don’t have to withhold or pay taxes. If you’re not classifying correctly, you can get stuck with some harsh fines and penalties.

So how do you determine if the individual is an independent contractor or an employee? One general rule to follow is that your worker is an independent contractor if the business has the right to control only the result of the work, not how the work will be done. However, there are three categories that can help you make your determination.

Behavioral Control

A worker is considered an employee when the business gets to be bossy. Okay, maybe bossy isn’t the right word, but the business does have the right to direct and control the work being done. Behavioral control can be broken down into a few more distinct categories:

  • Type of instructions – This can include telling the employee where to work, when to do the work and how the work should be done.
  • Instruction complexity – The higher the complexity of the instructions given, the more likely it is the individual is an employee. When the instructions have less detail, this gives the worker more control to do the job how they see fit, which points towards the worker being an independent contractor.
  • Evaluation – How a business evaluates the work can help determine if the worker is an employee or contractor. If the details of how the work was done are evaluated, then the worker is likely an employee. However, if only the end product is being evaluated, it’s more likely you have a contractor.
  • Training – This one is fairly simple. Would you like someone else telling you how to do your job? If a worker is an employee, the business has the authority to do just that. For independent contractors, they are the experts and generally don’t require training from the hiring company.

Control over Finances

This category looks at what control the business has over the financial and business pieces of the worker’s job. Factors to consider include:

  • Equipment investment – Independent contractors are much more likely than employees to make significant investments in the equipment they are using to get the job done. Employees are often provided equipment from their employer, rather than investing in it on their own.
  • Expense reimbursement – Businesses generally reimburse expenses for their employees, not for independent contractors.
  • Availability – Independent contractors generally have the freedom to seek out more business opportunities, while employees work is usually contained to the one business.
  • Payment – This one is easy to understand. When you have employees, you usually guarantee them a regular wage. With independent contractors, a flat fee is usually agreed upon and paid on the completion of the work.

Relationship Elements

What the business or worker offers in the relationship can also determine classification. Some key elements to consider are:

  • Contracts – Written contracts which describe the relationship the parties plan to create are a fairly simple way to determine which type of worker the business has. However, it’s important to note that a contract stating the worker is a contractor or an employee isn’t enough on its own to classify the worker’s status.
  • Benefits – Insurance, retirement, vacation and sick pay are benefits provided to employees. It’s rare for these benefits to be given to independent contractors.
  • Forever or just a fling – The length of time of the relationship can help determine a worker’s status. When an employee is hired, the expectation is that the relationship is long term. For contractors, the relationship isn’t permanent. Instead, both parties enter the relationship with the assumption of a certain amount of time for the work to be completed.

When businesses wrongly classify their workers, they are still liable for the related taxes and payments for those workers, and may even face other sanctions. Correctly classifying your workers helps you avoid this, making it easier for you to run your business.

We know this stuff can be kind of confusing – and even scary. But don’t fear! We are here to help.. just ask!

 

Prepping for Audit & Tax Work

It’s that time of year again – and no, we aren’t talking about the Super Bowl or Valentine’s Day. It’s time to starting thinking about your taxes and audits! Your awesome, talented and completely humble (or maybe not) CPAs know their stuff when it comes to taxes and audits.

However, there are some things you can do in your business to help prepare for your audit and tax work and (hopefully) take some of the headache away regarding these fun projects.

  1. Have your management or ownership team review all financial information before you submit it to your CPA. You might catch a mistake that needs to be fixed.
  1. Understand your balance sheet! If you’re recording your financials on the accrual basis (here’s your reminder), your balances should fluctuate. Some common balance sheet blunders we see include:
  • Prepaid asset issues. For example, did you prepay your insurance and still have some coverage in to the next year? You would then need to set that amount up as an asset, and reduce your expenses for the year.
  • Accrued liability issues. These are really anything you owe at year-end. You would still have to pay these, even if you stopped doing business on the last day of the year. For these, think of accrued PTO to your employees, sales tax collected, etc.
  1. Take a look at the tax organizer list or list prepared by client that your accountant or auditor has sent you, and make sure all items are good to go. It doesn’t hurt to have this reviewed by someone else, too. In fact, once this information is ready to go, your CPA will likely accept it early.
  1. Designate an employee in your company who will be the main contact with your CPA. This is usually someone who is responsible for most of the financials, or someone who has strong project management skills. If you’re the business owner and feel like this doesn’t quite describe you, have no fear – it doesn’t need to be you. Your time might be needed somewhere else in the business. Your accountant or bookkeeper would be a great contact, as they work with your finances daily. As a side note, if you choose to outsource your accounting services, that person could serve as your CPA’s main contact. This will help you have more time to work on your business, not in it.
  1. When it comes to your audit, know when your auditors plan to either work at your site or work on your information. If they will be on-site, make sure you have a space (and maybe a treat or two – rumor has it CPAs like treats) with enough room for them. Make sure your main contact and others who may have answers are around. The assistance of these people can ultimately improve the turnaround time on your audit and tax return. Let’s be real, it feels good to get that over with.

Some other pointers to consider…

  • Consider all the changes to your business that happened throughout the year: growth, new customers, etc. Are all the effects of those changes reflected in your financials?
  • Did you have any ownership changes? Even if you’re not quite sure how to put this on paper, bringing them to your CPA’s attention is always a good choice.
  • Did you add any long term assets (think building additions, vehicles, equipment, etc.)? If so, there are some details your CPA will want to know to make sure you’ve capitalized it correctly and are capturing the correct depreciation (hopefully some accelerated depreciation, too).

Ultimately, keep in mind that all of us CPAs are hired by you, to help you. Your success is our main goal. If we’re hard to understand, or using too much confusing number nerd talk, let us know. We want you to understand what’s happening in your business. Your CPA can be a valuable ally on your pursuit of growth and success for your business.

Updates to Form I-9

We want to keep you up to date on all changes that effect your business. Today, we bring you a compliance update from the American Payroll Association regarding the new Form I-9.

What is it? 

According to the US Citizenship and Immigration services, Form I-9 is used to verify the identity and employment authorization of individuals who are hired for employment in the U.S. Employers are required to complete a From I-9 for each person they hire to work in the U.S., including citizens and non-citizens.

What’s the story?

Form I-9 got a facelift. The U.S. Citizenship and Immigration Services released a new Form I-9, along with updated instructions. Along with these changes comes a new date. Employers have to start using this new version by January 22, 2017. Until that date, employers have the flexibility to use either the new form, or the old version.

So what changed?

Electronic seems to be the way to go in today’s day and age, and tax forms are no exception. Revisions have been made to Form I-9 so it’s easier to complete on a computer. Some new features include a start over button, on screen instructions for each section and drop down lists, to name just a few.

The electronic changes also bring options. Employers can now use either the computer form, the paper copy or both. However, the form available on the U.S. Citizenship and Immigration Services website can’t be signed electronically. The form must be printed, signed and dated by hand, where required. An exception to this rule is if the employer has their own I-9 system that meets certain requirements, in which case they may choose to use e-signatures.

Other changes made to the From I-9 include:

  • Wording Changes
  • Prompts to ensure correct information
  • A separate area to add additional information
  • Ability to add multiple preparers/translators and a supplemental page for them

But that’s not all …

Another change to the Form I-9 is the separation of the instructions. The instructions now include specific directions for completing each portion of the form. The new and improved instructions also include a list of documents used during the verification process, as well as commonly used abbreviations. If an employer is planning to rehire an employee, they will find guidance on when and how a previous Form I-9 may be used if the rehire is within three years of the previous date on the I-9.

The moral of the story…

One thing is certain: employee forms are complex. If you don’t stay up to date on changes, Uncle Sam might be shaking his finger at you and your business. If you ever find yourself struggling to keep up with these changes, let us know – we’re ready to help!

Overtime Ruling Delayed

Remember that time we told you about the new overtime ruling and why you need to care? (If you need a refresh, go here)

Well before you put everything into action, you may need to pump the brakes.

On November 22, Judge Amos L. Mazzant III, a judge in the U.S. District Court for the Eastern District of Texas, delayed the new salary level threshold for overtime pay.

What?

As a reminder, earlier this year, the U.S. Department of Labor updated its overtime regulations. That update more than doubled the salary level for employees to be exempt from overtime pay. Prior to the update, the overtime pay threshold was $23,660 annually. Under the new ruling, it’s now $47,476 annually.

This means that an estimated 4.2 million U.S. workers who previously were not required to receive overtime will now be eligible for overtime.

Cue some unhappiness.

So why is there a delay?

In October, several states filed a request for a preliminary injunction. This basically means they challenged the Final Rule put in place by the U.S. Department of Labor. And Judge Mazzant granted their request.

What does this mean for me?

The most immediate consequence will be that the new overtime ruling will no longer take effect on December 1. Instead, there will be time for further court hearings and discussions on the Final rule.

In other words, we all have to stay tuned. But for now, the current ruling is still in effect. We’ll keep you posted as things progress.

A version of this post first appeared on eidebailly.com.

 

The Lost Art of the Thank You Note

By: Allison Ausmus, Recruiter

Chances are that at some point in your life, whether it be personal life or career, you’ve had a reason to thank someone. Maybe it was for a gift you received or help on a project. We remember to say thank you when someone helps us, but when did we forget to say thank you after a job interview?

A few years back (we don’t want to date ourselves), colleges taught students to send hand written thank you cards after interviewing for jobs. This practice was seen as a way to show professionalism and was deemed as good etiquette – and it was the polite thing to do!

However, in recent years this trend seems to be disappearing. In today’s fast paced world of technology, showing appreciation by email or even snail mail (gasp!) is often considered a waste of time or seen as taking up too much valuable inbox space. And honestly, that’s a really sad trend.

Having a strong background in human resources, I know from experience that the candidates who send thank you cards or emails after an interview stand out (in a good way) because many candidates don’t take the time to send a thank you.

Here are a few reasons why it’s important to say thank you after an interview:

  • It shows character. Taking the time to express your appreciation for someone shows thoughtfulness. And who doesn’t want to work with kind, appreciative, thoughtful people?
  • It gives the opportunity to ask questions. If any questions or concerns came up in the interview, this is the perfect place to let them be heard. This shows you paid attention to what the interviewers were asking and what the company is looking for. You can address those concerns and simultaneously sell why you are the right choice for the opportunity.
  • It lets you reiterate you are a great fit for the job. You are able to address once more why you would be a good pick, and it also allows you to state what you like about the company and position. Ensuring the interviewers that you want this job lets them know how serious you are about the opportunity, and will help them differentiate between candidates.

If it comes down to the wire with you and another candidate, that thank you note could give you an edge. Sending a well written thank you note is a great opportunity to leave a memorable final impression with the interviewers, and could ultimately land you the job.

Employee Onboarding & Why It Matters

You’ve gone through the interview process and you’ve met with a few potential candidates you really like. After going over your notes and taking some time to think through who would best fit your role (and your culture), you find the candidate you believe fits perfectly with your company.

This isn’t just any candidate, either. This candidate has exactly what you are looking for in a new hire: they fit the company culture, possess the skills you are looking for, and give you excitement about what they can bring to the company. You like what you’ve found, and you want to make sure they stick around.

You offer the position and they accept. You can’t believe your find! So now what?

When a new hire is brought in to the company, they go through the onboarding process. The onboarding process is typically thought of as all the paper work, training, and first day orientation. However, the onboarding process is more than that, and the strategies of onboarding are changing and becoming more modernized. Here are just a few trends we’re seeing.

  1. From paperwork to technology. Many companies are starting to lean towards an automated process – but this doesn’t mean they are eliminating face to face contact. This new automated process is being used mainly for paper work, whether it be having forms filled out online, or just storing paperwork in files that are accessible to all who need them. Focusing less time on actual paperwork and using an automated process can mean more time to focus on training, and taking the time to get to know more about your new hire.
  2. The first impression. The most important aspect to remember when onboarding a new hire is the first impression. First impressions are all it takes to formulate an opinion, and this opinion could be a deal breaker for the new hire if not executed correctly. Did you know it takes anywhere between six months to a year for an employee to make his or her first impression on the company? But what you might not have considered is that this is also the time for the company to make an impression on a new hire. If the first impression does not impress the employee, this can cost the company key talent. However, fostering a great impression for the new hire can result in a sense of culture, loyalty, engagement, encouragement and excitement for the new hire.
  3. It’s in the detail. It’s not that hard to make a good impression. Have your new hire’s work space set up and ready to use when they arrive. Offer a small welcome gift. There should also be a substantial amount of new hire engagement taking place. Some examples of new hire engagement could be taking the new hire out for lunch, or holding a meeting to introduce him or her to their coworkers. This leads to happy and engaged employees who are much more likely to continue their employment with the company. Keeping the new hire engaged and happy eliminates the risk of them leaving and the company having to start the hiring process over again.

It is important to remember that onboarding is a continuous process and should be ongoing throughout the first six months to a year, rather than only the first week of employment. Having a solid onboarding process will help create a great first impression for the new employee and will help you keep the employee happy, engaged and less likely to leave the company.

 

 

 

 

 

 

Hiring the Right People

By: Alyssa Johnson and Allison Ausmus, Eide Bailly’s Recruiting Team

We begin with a story. You need help to build your company. So you decide to hire some new staff. You start out with high hopes. After all, this person will be the missing piece to your team puzzle. You write the position, it gets approved and you open it. You go through all the tried & true steps, remain patient and trust that the perfect candidate will come along.

Unfortunately, this is the way too many business go about their hiring process. They stick with what has worked in the past. After all, if it’s not broke, why fix it? They don’t worry about adopting new practices in order to attract the best candidates. Rather, they hold out hope that the right candidate will find them. But what if they don’t?

Hiring the right people has a huge impact, no matter the size of your company. So it’s important to get it right. In order to help you prevent these mistakes from happening, we’ve compiled a list of mistakes organizations make when it comes to finding and hiring the right people.

We’re not saying they’re magical or anything, but by avoiding these mistakes you can hopefully have a much smoother and more successful hiring process:

Not updating the job posting or having an unclear job description. We’ve all been there. Someone leaves and you need someone ASAP to replace them. So you copy paste the old job posting and use it.

Do yourself a favor and take a moment to re-evaluate what you really want when you have an open position. Is this truly the role you need? Did the last person live up to your expectations? If your job posting does not accurately depict what you are looking for, you are going to have a frustrating time hiring & retaining your new employee.

Also, keep in mind what top talent is looking for: advancement potential. Research from Randstad reveals that most staff leave firms due to lack of career advancement. So it would be wise to develop a position that has the opportunity for advancement.

Relying on employee referrals to fill the position. While employee referrals are great, they should not be your only source of candidates. When you rely solely on employee referrals, you can limit the types of candidates you get, as well as the diversity of candidates (which can have some serious legal ramifications). Rather, encourage employee referrals by asking your current employees to share an open position with their network. Then post the position in a variety of places.

Hiring for a perfect paper match. Some qualifications and skills are nonnegotiable when it comes to hiring (think education requirements, certifications or credentials, as well as pervious relevant experience). But remember, you’re not perfect and neither are the people you’re interviewing. So think through what skills are absolute and what skills are “nice to haves” but not deal breakers.

Don’t get stuck in the rut of finding that “perfect candidate.” If you expect to find someone who checks off every requirement on the job posting, it can also draw out the hiring process for a long time.

Not conducting background checks or reference checks. A company, at minimum, should be conducting background checks on every candidate they plan to extend an offer to. Make sure this happens before an offer is even made. Why? Well surveys show that as many as a third of candidates lie on their resume.

Reference checking is more gray. Companies need to be careful when conducting reference checks, as they do not want to jeopardize the candidate’s current employment. A best practice is to ask the candidate for references of past employers (not family, friends, etc.). Let them know the type of people you would like to have as references, such as current or previous supervisors or managers, a client, a vendor, a subordinate or a coworker.

Once you get the go-ahead from the candidate to reach out to their references, make sure you know what you’re asking. Jot down questions you want to ask or any issues you want to address. Let the reference know this will be kept confidential, and then make sure you do just that – keep it confidential and use this information as a piece in decision making.

Not preparing before the interview. You’ve found a great candidate and you schedule an interview for Thursday. It’s now Thursday morning and your week has been crazy so you haven’t prepared at all. This isn’t great. Failing to do a structured interview is a big mistake. Structured interviews have been shown to have twice the predictive reliability than unstructured interviews.So what should you do?

  • Prepare and write down a list of standard interview questions to ask every candidate you interview for this particular position
  • Take time to review the resume and develop questions based on items you would like to address
  • Gather information you want to share with the candidate about your culture, team dynamics, projects they will work on, job expectations, advancement potential, etc.

Hiring can be exhilarating, frustrating and oh so rewarding. With these tips in mind, you will be on the way to identifying the ideal fit for your organization, while providing a positive experience for you, your team mates and the candidate.