15760 Ventura Blvd, Suite 610 Encino, CA 91436
15760 Ventura Blvd, Suite 610 Encino, CA 91436
Personal, Affordable Payroll Services, Bookkeeping, and Tax Processing for Small Business throughout Los Angeles County.

How Do You Classify Your Workers?

Companies are prone to making lots of mistakes whenever they take the matter of payroll into their own hands. One of the most common and grievous errors that can occur is the failure to classify employees as independent contractors. This minor gaffe can result in rigid penalties but can be avoided altogether with a trusted payroll partner.

The classification of employees makes a considerable difference in regards to taxation of a business — a quality considered essential in coveting financially sound status. Small businesses looking to cut corners in the accounting department often aren’t aware of the essential subtleties in employee classifications. These companies might save on operations, but they carry a significantly higher risk of facing ruinous financial consequences.

Typically speaking, workers fall into one of two different subsets: a regular employee or an independent contractor. This classification directly relates to how these workers are compensated and how their earnings are reported to the IRS — Form W-2 versus Form 1099. There are key differences in how things like federal income tax and employment tax withholding apply to each status.

Beyond staying in the good graces of the IRS, appropriate considerations are especially important to workers. Classification as an employee or independent contractor can determine if that worker is entitled to benefits such as medical insurance coverage, retirement plan benefits and grants of equity compensation.

Businesses that fail to correctly classify their workers typically do so as a as a result of leaning on their own interpretation of what’s legally required. Even business owners with a background in accounting might not see the forest for trees — modern accounting has rapidly evolved. Any business considering handling their accounting internally should be especially wary of the gray area it creates.

Another reason businesses fail to classify workers actually occurs as a result of their failure to classify them at all. Independent contractors who provide more than $600 is total services must be issued a Form 1099 — failure to do so results in a stiff penalty. There are exceptions, of course, such as corporations not required to be issued a Form 1099.

Don’t let inadequate bookkeeping prevent your business from taking things to the next level. Outsourcing your accounting for payroll to Accounting Taxes Payroll Solutions (ATPP) can provide you with real solutions. Take advantage of our accounting expertise in managing payroll, appropriating taxation and record keeping. Contact our Los Angeles office at 818-436-2775 for additional info, or visit our site to learn more about a specific service.