Employees in Your Business

Barbara Business Owner considers herself lucky to have very supportive friends who are also business owners. Recently, she decided to hire new talent to support her growing business, and her fellow business owners helped her realize the basic differences between a traditional employee and an independent contractor.

While she considers herself no expert on the topic yet, Barbara knows that she must dive deeper to maximize her knowledge of employer responsibility when hiring workers.

This article will clearly define an “employee” in a business and the obligations an employer has to their employees.

Who Is an Employee?

An employee is the most common type of worker who typically works a predetermined number of hours, following the company’s training and policies. In return, the employer pays them regularly, often alongside other benefits.

The IRS defines an employee as anyone who performs services in a setting where the employer controls what is done and how it is done, either on a full-time or part-time basis. The employer reserves the right to control the details of how the services are ultimately performed, although it may give the employee some freedom of action.

According to the U.S. Department of Labor (DOL), under the Fair Labor Standards Act (FLSA), and employee is “any individual employed by an employer”. While the U.S. DOL does not consider control factors as the IRS does, it often leans on the “economic realities” of the worker in defining their status as an employee (vs an independent contractor).

Employees and Taxes

It is commonly understood that employers are responsible for withholding federal taxes from their employees’ wages and depositing them with the IRS. Employers also pay half of their employees federal payroll taxes (a collective name for social security and medicare taxes).

This also includes the paperwork around such taxes such as submitting employment tax, quarterly employment tax returns, and annual filing  a W-2 form to report wages, tips, and other compensation.

At the state and local level, employers must also withhold state income tax, if applicable. Oftentimes there is local income taxes the employer must withhold from their employees’ wages as well as pay employer state unemployment taxes. These taxes must be remitted along with filing tax returns with local tax authorities.

Employer Provides Mandatory Training

Every employer is responsible for training their employees in accordance with federal, state, and local laws as they apply to them. Some of the mandatory training programs for employees by federal law include discrimination, sexual harassment, occupational safety and health, the Fair Labor Standard Act, and compliance and ethics training.

There is also industry-specific training to ensure compliance with the standards in the field, e.g., healthcare, pharmaceutical, and finance. Finally, employers should provide workplace-mandated training according to company policy.

Employer Provides Mandatory Benefits

The federal requirements for benefits typically come in the form of taxes the government collects to provide services, such as social security and medicare, state benefits, such as unemployment, or insurance the employer carries, such as workers compensation. Often, there are mandates to provide for unpaid or paid leave as well. While intended to benefit the employee, these aren’t considered benefits in the traditional sense.

There are some benefit mandates, such as the Affordable Care Act that require companies of a certain size to provide certain benefits to their employees.

There may be several state-level requirements, depending on where the employees are located. For example: some states, including Colorado and New York mandate employers to provide paid leave to their employees.

It’s common practice for employers to provide employee benefits as a ploy to attract the best talent, but those lie outside of government mandates.

These are some of the most common distinctions of an employee worker in a business. Next week, we will continue Barbara’s understanding of what distinguishes a worker as an independent contractor.

For a customized to properly structure your workers, both employees and contractors, contact us today.

ClearPath is a leading Human Resources Outsourcing company focusing on assisting employers to leverage the independent contractor labor market. We’re committed to helping business owners stay compliant and minimize the risks associated with their contingent labor requirements.

No Legal Advice Intended. This article includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal issues.