Classifying Workers as Employees or Independent Contractors for Reemployment Tax: Florida DOR Releases Guidance

The Florida Department of Revenue (the "DOR") has issued guidance on whether a worker is classified as an employee or an independent contractor.  The distinctions between employees and independent contractors are fundamental concepts in tax law and, for practical purposes, knowledge of these concepts are necessary to ensure compliance and avoid pitfalls when preparing an Employer's Quarterly Report (Form RT-6).   In addition, the guidance notes the adverse consequences of misclassification of workers: "Misclassification of workers is not just a tax reporting issue; it also affects claims for reemployment assistance benefits. If a person files a claim for benefits and the employer has not been including the person on the quarterly report, this can cause a delay in benefit payments. The intentional misclassification of a worker is a felony."  The guidance then discusses that the "Reemployment Assistance Program Law," Chapter 443, Florida Statutes, provides that services under the common-law "employer-employee" relationship constitute employment (in particular, see, §443.1216(1)(a)2., Florida Statutes).  It then provides ten factors under common law to determine if a worker is an employee or an independent contractor.I think that restating all ten factors from the guidance here is unnecessary, but I will note the following interesting points that jumped out at me:(1) 1st Factor ("The extent of control which, by the agreement, the business may exercise over the details of the work." ): The DOR notes that this factor is the most important of the 10.2) 9th Factor ("Whether the parties believe they are creating the relationship of employer and employee."):  The DOR note that a written agreement between the parties and describing the relationship should be honored unless other provisions of the agreement, or the actual practice of the parties, show that the agreement is not a valid description of the status of the working relationship.  For example, if the actual practice of the parties shows an employer-employee relationship, an agreement which describes the worker as an independent contractor will be disregarded.  In this regard, the DOR notes that the treatment of the worker, not the language of a written agreement or an issuance of a 1099, determines whether someone is an employee or independent contractor.I nevertheless encourage the reader to review the ten factors as they are useful to understand how the DOR examines the distinctions between employees and independent contractors.The guidance notes that Florida's common law criteria for determining the status of workers are similar to, but independent of, the IRS's criteria.  It links to the IRS's discussion of this issue. See "Florida Issues Guidance on Worker Classification for Reemployment Tax Purpose," 2013 STT 169-6, August 30, 2013. Want to further discuss these issues?  Contact me at 954-944-3929 or nrumbak@rumbaklaw.com.*This document contains legal information, but does not contain legal advice.