If you are being paid for services as an independent contractor, be sure to review the rules for qualifying. If your classification is changed, you may be subject to additional tax. Although as an employee you pay only half of the FICA tax you pay as an independent contractor, it is figured on the gross income not your net income after business deductions, so your FICA tax may be higher as an employee depending on the amount of deductions you take on your Schedule C. In addition, any business expenses you deduct would be limited to the amount exceeding 2% of your adjusted gross income (AGI). Also, since your AGI would likely be higher as an employee, you may lose certain tax credits or deductions that are based on your AGI. In determining whether you are an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
Pre-employment background checks are becoming a must. You can do much of the checking yourself. To start the process, have potential applicants fill out an application listing information to be verified. The application should inform applicants that you will check the information they have listed on the application, call prior employers, check their driving record and check for a criminal record. Ask applicants to sign a release included at the bottom of the application.
Internal theft/crime and on the job injury are often drug related. Consider adopting a drug testing policy.
There are at least two good reasons for doing so:
- Hiring - At a minimum, you should adopt a policy of drug testing new employees and provide a copy of the policy to all new applicants with your usual employment application forms. Even if no testing is performed, this will often discourage drug users from applying.
- If you have a drug impaired employee injured or killed on the job, N.C. law places the burden of proof on the employer to show that the presence of drugs or alcohol was the "proximate cause" of the employee's injury or death. Absence this proof, workmen's compensation cannot be denied. This can be a severe burden for a business.
You might consider purchasing a key-person life insurance policy that covers the loss of services when a key employee dies. The benefits can be used to cover any lost profit and the cost of replacing the employee. The insurance is owned by your business, which also receives the benefits.
It appears one person has significant control over your business cash accounts. This increases the opportunity for fraud.
To reduce the possibility of such fraud:
- You (the owner) should sign checks.
- When signing checks, double check unfamiliar names. Payments could be going to dummy accounts set up by an employee or employees.
- Have bank statements mailed to your home. Scan them for unusual items before giving them to your bookkeeper.
- Periodically (for example: twice a year), have someone else reconcile the bank statements. If you don't have another person who can do this, we suggest you have one of our bookkeepers perform this task.
- Require mandatory vacations for employees with financial responsibilities.
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