Although this case involves a worker who lived on-site, this factor had no effect on the ruling. In other words, this decision may affect your company or client. SDLL, an LLC that owned an apartment complex, took on a property manager for the apartments as an IC. He lived in a unit in the complex and was paid a fixed monthly amount, performing a range of work, including repairs and maintenance, interviewing applicants, and accepting rental applications. The IRS audited SDLL and determined the property manager should be treated as an employee. Held: For the IRS. The court found 8 factors that made the property manager an employee rather than an IC:
- The owner exerted significant control.
- The owner determined which tasks the manager performed, the amount of expenses he could incur, the rent for each unit, which rental applicants to accept, and more.
- The manager made no investment in the facilities—the owner provided an office and much of the equipment.
- The manager provided only a few of the tools he used for repairs.
- The manager had no opportunity for profit or loss since he was paid a fixed rate by the owner.
- The owner had the right to fire the manager at will.
- The manager was an integral part of the owner’s business and had worked there for a number of years.
- The few outside jobs the manager took on evenings and weekends did not affect the first 7 factors. The manger was an employee, not an IC. [Hampton Software Development LLC v. Commissioner, T.C. Memo. 2018-87]
Article from AIPB Aug 2018 Newsletter
Most small business owners who are expanding and is in need to add workers often times consider the part time or temp worker as Independent contractor, when the worker should really be an employee. While having employees will incur additional cost such as payroll tax, payroll expense and the responsibility to withhold, report and remit federal taxes, the cost of misclassify employee as a contractor may cost a small business even more. If your growing business is at the point to add employees, use a reputable payroll provider. At EZ Bookkeep, we are partnered with Patriot full service payroll and will provide you with a turnkey solution from direct deposit for paychecks, withholding, all filings and reporting as well as year end W2s and W3. If you are uncertain whether a worker is classified as employee or independent contractor. Check out this IRS publication 1779 brochure, Instruction for form SS8 and Form SS8 for the IRS to confirm the correct classification.