I have some exciting news to share with you today. There have been a number of changes in my accounting practice over the last couple of years. One thing that has remained constant is my commitment to take care of you, my clients, in every way that I can. Today I am writing about another big change.
No, I am not retiring!
I am merging my practice with another larger, well-respected firm based in Newburyport, Massachusetts. I have known Keith Congdon of Ambrosi Donahue Congdon, CPAs for several years and consider him a good friend. After this merger, I will keep working with you as a client for tax planning & tax preparation. You will still be able to drop off & pick up information and meet with me at the same location. Essentially, I have hired a larger firm to be my back office while I get to focus on client service.
We will keep the office in Hampton open where I have worked since 2004. As we have opportunity, I will introduce you to some of the other staff. But the bottom line is that I will still be your accountant, and through this merger will be able to provide an additional layer of service to you. Also, I will continue to be available for financial education and planning using the product-neutral platform of Financial Stories.
Keith and I and the other staff in the Newburyport office are looking forward to an exciting future for our combined firm. The transition should be relatively easy as our computer systems, software, and processes are very similar. I hope you will feel comfortable and well cared for in this transition. And I would be happy to talk with you further should any questions arise.
Like most business owners, I am always looking for ways to cut costs and increase profits. One way that is often used is to treat workers as “independent contractors” rather than “employees”. That’s a good strategy if you get it right. But if you aren’t very careful, this approach can end up being far more expensive in the long run.
The consequences of misclassification may include having to pay payroll taxes that should have been withheld from employees plus federal and state unemployment on those wages. But the greater risk is the penalties and fines that state and federal Labor Departments can levy. The penalties and fines can be substantial enough to put any company out of business. In New Hampshire, a single violation can lead to a $2,500 fine plus $100 per employee per day for noncompliance, for as far back as a year. So, yes, do the math. $36,500 per employee plus $2,500. You may not live or work in New Hampshire, but your state probably has something comparable.
I was recently made aware of a Labor Department case where the department insisted that a non-working spouse was an employee of her husband’s sole proprietorship simply because she assisted him with the business (for no pay). Seems innocuous enough, until you consider record keeping requirements, employment taxes, and worker’s compensation insurance.
The IRS has established a 20 factor test to help determine the employment status of workers. These factors are broad, and I can often find arguments to support either position: that the worker is or is not an employee.
However, the State of New Hampshire has established a three factor test which makes it very difficult to have independent contractors working in or for your business.
NH RSA 282-A:9 defines employment in the State. Here is the legal language:
III. Services performed by an individual for wages shall be deemed to be employment subject to this chapter unless and until it is shown to the satisfaction of the commissioner of the department of employment security that:
(a) Such individual has been and will continue to be free from control or direction over the performance of such services, both under his contract of service and in fact; and
(b) Such service is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
(c) Such individual is customarily engaged in an independently established trade, occupation, profession, or business.
Notice that you have to pass all three tests; failure on any one factor means the worker is an employee. In my experience, the hardest one to pass is the second one: the worker is doing something for you that is outside your normal course of business or away from any of your places of business. Say, for example, if your business is painting houses and you have someone working with you to paint houses, that person is probably an employee. If you are a landscaper with a crew working for you, those workers are probably employees, even if they are part-time, temporary, or seasonal.
And I am finding that both the NH Department of Employment Security and the NH Department of Labor are becoming much more aggressive in enforcing these standards.
If this article raises concerns for you about your classification of workers, then we need to talk … SOON! Please call me before the auditors show up at your door.