In the typical dealership, workers who may fall under some of the fact patterns above would be service technicians; vehicle drivers (for dealer trades/used vehicles/general runners); detailers and other support staff in the service department; and even salespeople. Great care must be exercised to ensure that these individuals are properly categorized. For example, you may have a journeyman technician, classified as an independent contractor, with their own toolbox, and you reimburse them for tools under a program, and give them a Form 1099 for services. Do they work at any other shops? Are they full time? They may be employees. Another example would be the retired individual that does vehicle drives to pick up dealer trades, auction vehicles and such, who receives a 1099. Are they working for any other dealership? Is their main source of active income coming from you? How are they handing their vehicle insurance? They may be an employee.
SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding can be filed by an individual or an employer to ask the IRS to determine the status of a worker under common law rules, as described above. These are generally filed by individuals who believe they are employees and entitled to employee benefits. The decision by the IRS is binding. If determination is made that an individual being treated as an independent contractor is an employee, the employer doesn’t technically need to do anything, but needs to determine his risk factors in the event of an employment tax audit.
The IRS does have a Voluntary Classification Settlement Program (VCSP) which was set up in 2011. It gives parties the option to receive partial relief from previous federal employment taxes, such as social security and Medicare tax, if they voluntarily reclassify workers as employees.
Read the full story at Are your workers Independent Contractors or Employees? Be Secure