Jump to Navigation

Worker classification and payroll taxes at issue in Texas

Much of the news regarding the payroll tax in recent weeks has concerned the impact on the economy that the end of the payroll tax cut is likely to have. To be sure, that is a legitimate concern. But regardless of what the rate is for employment taxes, employers can run into payroll tax problems when they do not make those payments to the IRS in a timely manner.

In Texas, there is also particular problem for employers in the construction industry. Business leaders are concerned that some companies in the industry are not classifying their workers properly. This is not necessarily an issue of employing undocumented immigrants. Even apart from immigration status, there can be a question of whether a worker should be classified as a subcontractor or an employee.

Nationally, in response to competitive pressures in the marketplace, many companies have made much greater use of contractors in recent years. Companies have been reluctant to add too many employees, due to those same pressures.

If a worker is a contractor, companies do not have to pay payroll taxes. These taxes include Social Security taxes, Medicare taxes and unemployment taxes. There are also other payments that employers are not required to make for contractors, particularly workers' compensation and overtime.

A key question, of course, is whether a given worker is properly classified as a contractor or an employee. Legally, there are many factors that can affect this determination. These include the duration of the relationship and the degree to which the worker has control of the day-to-day work.

Some companies in the Texas construction industry are concerned that their competitors are classifying too many workers as contractors when in reality those workers are employees. As we've discussed, the distinction between those two statuses can be a complicated one. And it will directly impact a company's amount of payroll tax liability.

Source: "Shoddy Construction? Tax Loopholes Prompt Concerns," Fox News Latino, Casey Stegall, 1-17-13

No Comments

Leave a comment
Comment Information

Contact Us

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Visit Our Tax Law Website Subscribe to This Blog's Feed
FindLaw Network