Lubbock & Amarillo, TX Business Start-Up Attorney
Business Startup Anxiety – Be Worried about the TWC and IRS – Be Very Worried!
I have started up a myriad of businesses over the years from small retail stores to complex technology companies. Large and small, many clients avoid obtaining professional advice to guide them through the growth process typically during the first year of operation. A leading cause of failure arises from failure to comply with Texas employment laws. Here are a few things to consider.
1. The TWC can Take Your Business Down
The TWC or Texas Workforce Commission is not in business to destroy your business. In actuality, this agency comprises dedicated state employees who are in place to protect the rights of workers. However, as a business “owner” you are charged with knowing what the rules are as they pertain to bringing employees on board. Ignorance of the law is not excuse. During the Business Startup Process do not rely on the school of hard knocks as the first or second knock on the door may be from the TWC or IRS!
2. Not every Worker is an Independent Contractor
Improperly categorizing your new worker as an independent contractor is the most common legal mistake made by startup business and startup companies. As the main consideration of most owners is to reduce operating expenses, it makes sense to require the new hire to pay her own taxes to the IRS – right? Nope. Usually wrong! An independent contractor applies in rare circumstances when the worker is entirely responsible for his own tools, work hours, and training. Once the business owner imposes any control in this process, the TWC will invariably take the position that the worker is not an independent contractor but an employee.
3. What Factors Indicate an Employee Relationship?
Control – control – control – even if minimal. Here are a few factors which will often lead the TWC to determine that your new worker is an employee and not an independent contractor – a set office or work space, any training, set hours, and providing a business card or any office equipment.
4. So what Happens if the TWC gets Involved?
It can be most unpleasant. The TWC will investigate to determine if the worker is really a disguised employee. The TWC can force you to produce all of your financial records and subpoena other documents. They will typically hold a hearing with the former worker present and make an administrative determination as to whether Jane Doe is an employee or not.
5. What Happens if Things Go South on the Employment Front?
Not good! You will be responsible for paying back insurance to the newly minted employee but going back to the date of the first day on the job. The TWC will also likely investigate every worker you hired to see if they are also employees. If so – the hammer drops again!
6. So What about the IRS?
When the first domino falls with the TWC determining that an independent contractor is really an employee – they typically notifiy their friends at the IRS as to that decision. Once the IRS finds out that employees were hired from the beginning, it will typically subpoena financial records and require the business to pay back withholding taxes. Just like the TWC – the IRS will investigate anyone who worked at the new business.
Big mistakes can destroy a new business in its first year of operation. Business enemy no. 1, in my opinion, is the improper classification of an employee as an independent contractor. Consult with an employment lawyer to avoid potentially fatal results during your startup phase.