Wisconsin Governor Tony Evers held a press conference in mid-April 2019 outlining a new initiative to combat payroll fraud, especially where it occurs in the construction industry. Evers claims that there are far too many companies not playing by the rules. When that happens, they harm both employees and those companies that do follow the letter of the law.
Where Evers sees payroll fraud, Dallas payroll provider BenefitMall prefers to focus on compliance. The big issue for Evers is his perception that most of what happens in the state of Wisconsin is willful worker misclassification. He may be right. But he might also be wrong.
BenefitMall says that construction payroll is incredibly complex. They say it’s quite common for construction companies to unintentionally misclassify their workers simply because construction is so different than most other industries. At any rate, payroll compliance is nonnegotiable in the construction industry. The last thing a construction company wants is an army of federal and state tax officials breathing down its neck.
Worker Misclassification and the IRS
The IRS classifies workers in one of two ways for tax purposes: as employees or independent contractors. This is generally not an issue with most companies because independent contractors make up such a small portion of the total workforce. But things are just the opposite in construction.
The construction industry – especially in the arena of residential and commercial buildings – is made up of multiple layers of contractors and subcontractors. It can be extremely difficult for some construction companies to figure out how to classify their workers according to IRS guidelines. What’s the problem? Those guidelines are not black and white.
The IRS doesn’t offer a concrete definition of independent contractor. Rather, they suggest employers look at nine different criteria divided into two categories: financial control and relationship. They are expected to make classification decisions based on how the criteria line up with their own circumstances.
This may sound easy, but it’s not. There is so much overlap in the construction industry that making heads or tails of the IRS guidelines can be nigh to impossible. Thankfully, BenefitMall says there is a solution.
Construction Industry Payroll Solutions
The solution to the whole employee vs. contractor mess is to stop doing your own payroll in favor of partnering with a company that specializes in the needs of construction companies. Let a payroll provider with a specialized, purpose-built construction payroll solution handle it.
A payroll provider’s business AND specialty is payroll. They are experts at payroll just as construction companies are experts in building homes and office complexes. A payroll provider knows how to correctly classify workers and thereby keep the IRS and other government officials happy.
The Consequences of Noncompliance
There is a very good reason to turn construction payroll over to a specialized provider. That reason is found in the consequences of noncompliance. According to the IRS website, employers found to have misclassified workers as independent contractors will be required to pay employment taxes on the affected workers. This includes back taxes.
If the IRS finds that misclassification was intentional, additional fines and penalties may be assessed. This could mean a substantial chunk of cash is tied up to satisfy the IRS, preventing a construction company from continuing to operate.
Construction payroll is complicated enough as it is. Company owners don’t need the headaches that come with trying to figure out worker classification on their own. And because compliance is nonnegotiable, it is usually a wiser move to turn construction payroll over to a third-party provider with a specialized construction payroll solution.