Mike Kappel, CEO of Patriot Software, Inc., was interviewed for a FitSmallBusiness.com article that discusses the implications of the U.S. Department of Labor (DOL) notice on small business owners.
In July 2015, the DOL issued a notice that included a clearer test to determine which workers are employees and which workers are independent contractors. Kappel believes small business owners will see an increase in the payroll taxes they have to pay because of the items in the notice.
Contractor vs. Employee
In the Fit Small Business article, Kappel says many businesses currently use independent contractors to avoid paying payroll taxes. Since employers do not have to pay the employer portion of payroll taxes when they use contractors, it can be a huge cost saver for small businesses. Employers do not have to withhold and submit payroll taxes from a contractor’s wages either.
The DOL notice and test are more strict about who can actually be classified as an independent contractor. With the notice, many contractors may need to be reclassified as employees. This means big changes for some employers since they need to issue Form W-2 at year end to each of their employees. Employers also have to withhold and submit payroll taxes for their employees, along with paying the employer portion of the payroll taxes.
While reclassifying independent contractors as employees can be costly, small business owners should follow the DOL guidelines. Not following the guidelines can become much more costly, stated Kappel. If a business misclassified workers, the business may have to pay back wages, overdue payroll taxes, and penalties.
Other article highlights
During his interview, Kappel was asked about the pay methods Patriot’s online payroll software provides to employers. In his response, Kappel revealed Patriot is working to introduce pay cards as another option employers can use to pay employees. Currently, most of Patriot’s customers pay their employees with paychecks; others use direct deposit.
Kappel also explained a couple of the advantages of choosing Patriot Software over larger competitors.