In recent years, the battle over how workers are classified has heated up. Federal and state government agencies have been going after businesses that intentionally or unintentionally classify their workers inaccurately as independent contractors when they should have been classified as employees. The resulting audits have proven to be very costly for companies that aren’t in compliance. Unfortunately this is something that has occurred frequently in the construction industry.
In a surprising move, the IRS recently announced the Voluntary Classification Settlement Program (VCSP), which will enable employers to address their worker classification noncompliance issues and resolve them with certainty at a relatively low tax cost. The VCSP does not add any clarity to existing laws, but rather provides a mechanism for employers to reclassify its workers prospectively without incurring substantial costs and without being subject to an audit.
To be eligible, an employer must meet these three criteria:
- The employer has treated all workers consistently – the individual has never been classified as an employee, and workers who hold a substantially similar position have also never been classified employees.
- The employer has filed a form 1099 for each misclassified worker for each of the past three years.
- The employer cannot be presently under examination by the IRS for any reason, and is not presently under examination by the Department of Labor or any state government agency with respect to the worker classification issue.
To be part of the VCSP, the employer must fill out form 8952 (Application for Voluntary Classification Settlement Program) at least 60 days prior to the date the employer wants to begin to reclassify the workers as employees. The IRS will then review the employer’s eligibility, and contact the employer to complete the process and enter into a closing agreement.
If accepted into the VCSP, the employer will then:
- prospectively treat the subject workers as employees;
- pay 10% of the employment tax liability that would have been due for the previous year as computed under Code Section 3509;
- not be liable for interest or penalties;
- not be subject to a federal employment tax audit for prior years on the classification of these workers; and
- agree to extend the employment tax statute of limitations from 3 years to 6 years for each of the first three calendar years beginning after the VCSP closing agreement.
Further information can be found on the IRS’ FAQ page, and we strongly advise you to contact your Aronson tax advisor at 301.231.6200 to help avoid the potentially costly consequences of trying to handle this matter on your own
One month after the steepest one month decline in over a year, the American Institute of Architects (AIA) Architecture Billing Index (ABI) saw an unexpected increase in the month of August. The August ABI score was 51.4 after a previous score of 45.1, and indicates an increase in the demand for design services, which in turn means the possibility of increased construction spending in the future. According to Kermit Baker, the AIA’s Chief Economist, this score indicates that the industry may have finally hit the bottom of this current down cycle, a much welcome sign for the construction industry.
You can read the full press release for the August ABI at the AIA website.
There is an awful lot going on within the construction industry these days on all fronts, but the one glaring issue facing the industry is the heightened unemployment levels as a result of the prolonged construction recession. The current unemployment level for the construction industry as of August 2011 is 13.5% which is almost 5% higher than the national average covering all sectors.
With the health of the U.S. Economy on the verge of a recessionary relapse the President delivered to the country a speech on September 8, 2011 in which he proposed the “American Jobs Act”. The Act includes the following which will directly impact the construction industry: Continue reading »
So far 2011 has been a rollercoaster year for the Construction Industry as a whole. Most recently the industry saw a spending increase in June to hit a 6-month high, only to see the most recent economic data suggest a sizable decrease in spending in July. According to McGraw-Hill Construction, there was a 10% decrease in July construction starts compared to a 15% gain in June as revealed in their article. Contradictory to this, The Associated Builders and Contractors (ABC) released their Construction Backlog Indicator which appeared to present improved data in that backlog had increased 10% in the 2nd Quarter of 2011. Continue reading »