Welcome to PayTech’s May Update
Your Employees are Stressed Out About Their Financial Futures, Study Says
A vast majority of American workers are worried about their financial future, according to a new study by Bank of America Merrill Lynch.
The latest Workplace Benefits Report has revealed that American workers’ stress about their finances has increased, while confidence in their financial futures has decreased. Specifically, three in five employees today feel stressed about their financial futures, up from 50 percent in 2013.
For the study, Bank of America Merrill Lynch conducted a nationwide survey of more than 1,200 employees with 401(k) plans at companies of all sizes.
Some of the key findings of the study about employee financial stress include the following:
- More than half (55 percent) admit to needing help managing their finances, including saving for retirement and managing debt.
- About seven in 10 (69 percent) have experienced a rise in healthcare costs over the past two years, directly attributing to decreased retirement savings.
- Fifty-nine percent want help understanding how workplace financial benefits can aid in increasing their financial security.
- Nearly two-thirds (64 percent) of employees say they have increased their focus on retirement planning and saving and recognize the importance of the saving plans offered by their employers.
- About 68 percent say that financial benefit plans offered by their employers will be their largest or second largest source of income in retirement.
What You Can Do to Reduce Employee Financial Stress
With ongoing market volatility severely impacting the economy at large, it’s not difficult to understand why the heat of employee financial stress is being felt. It’s also not a surprise that employees are now looking at their employers to help them manage their financial lives.
“Given how many are struggling with today’s financial demands while planning for their future, employers are in a critical position to help their employees secure their financial future,” says Lorna Sabbia, head of Retirement and Personal Wealth Solutions for Bank of America Merrill Lynch.
“By working in close partnership with a plan provider dedicated to helping employees live better, such as Bank of America Merrill Lynch, employers can provide their employees financial wellness programs and benefits that are accessible and integrated.”
A study of employers conducted in 2015 found that providing financial employee wellness programs can help employers identify the trouble spots that prevent employees from gaining financial security.
From a business perspective too, it makes sense to provide the right financial guidance to the employees. As Kim Kasin, financial guidance executive at Bank of America Merrill Lynch says, “By offering financial wellness solutions and addressing their employees’ needs, employers can create a culture that enables the employees to accept the assistance.”
Independent Contractor (Self-Employed) or Employee?
It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.
Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.
Select the Scenario that Applies to You:
- I am an independent contractor or in business for myself
- If you are a business owner or contractor who provides services to other businesses, then you are generally considered self-employed. For more information on your tax obligations if you are self-employed (an independent contractor), see our Self-Employed Tax Center.
- I hire or contract with individuals to provide services to my business
- If you are a business owner hiring or contracting with other individuals to provide services, you must determine whether the individuals providing services are employees or independent contractors. Follow the rest of this page to find out more about this topic and what your responsibilities are.
Determining Whether the Individuals Providing Services are Employees or Independent Contractors
Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be –
- An independent contractor
- An employee (common-law employee)
- A statutory employee
- A statutory nonemployee
In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.
Common Law Rules
Facts that provide evidence of the degree of control and independence fall into three categories:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF) can be filed with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.
Be aware that it can take at least six months to get a determination, but a business that continually hires the same types of workers to perform particular services may want to consider filing the Form SS-8.
Employment Tax Obligations
Once a determination is made (whether by the business or by the IRS), the next step is filing the appropriate forms and paying the associated taxes.
- Forms and associated taxes for independent contractors
- Forms and associated taxes for employees
Employment Tax Guidelines
There are specific employment tax guidelines that must be followed for certain industries.
- Employment Tax Guidelines: Classifying Certain Van Operators in the Moving Industry
- Employment Tax Procedures: Classification of Workers within the Limousine Industry
Misclassification of Employees
Consequences of Treating an Employee as an Independent Contractor
If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker (the relief provisions, discussed below, will not apply). See Internal Revenue Code section 3509 for more information.
If you have a reasonable basis for not treating a worker as an employee, you may be relieved from having to pay employment taxes for that worker. To get this relief, you must file all required federal information returns on a basis consistent with your treatment of the worker. You (or your predecessor) must not have treated any worker holding a substantially similar position as an employee for any periods beginning after 1977. See Publication 1976, Section 530 Employment Tax Relief Requirements for more information.
Misclassified Workers Can File Social Security Tax Form
Workers who believe they have been improperly classified as independent contractors by an employer can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation. See the full article Misclassified Workers to File New Social Security Tax Form for more information.
Voluntary Classification Settlement Program
The Voluntary Classification Settlement Program (VCSP) is a new optional program that provides taxpayers with an opportunity to reclassify their workers as employees for future tax periods for employment tax purposes with partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat their workers (or a class or group of workers) as employees. To participate in this new voluntary program, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.
Do you find managing your business finances to be a pain? Although it may appear to be, and often is, tedious, keeping your finances in order is extremely important.
It helps you to project where your business is headed, and when you know exactly how your revenue and expenses are stacking up, you can begin to make more informed decisions for your business. Maintaining your financial records also makes tax reporting and payments a lot more manageable.
Don’t try to do it all alone. Leverage the talent and the tools that are available to you. Here are some tips to help you keep your business finances in order:
1. Keep your personal and business finances separate.
Mixing your personal and business finances will inevitably result in confusion. It might seem convenient to charge everything to a single card, but ultimately this will make tracking your spending far more complicated than it needs to be.
Begin by opening separate bank and credit card accounts for your business. For the ongoing tracking and measuring of your finances, and for tax purposes, this practice will take a major headache out of sorting your transactions every quarter, or every year as the case may be.
This will also take the guesswork out of the equation. If you want to be successful in business, you need to be able to monitor and track your key performance indicators. You need to know the score, and some of the most important elements include cash flow, expenses, revenue, profit and so on.
2. Choose accounting software that makes sense for your business.
Before making a decision on your accounting software, consult with your Accountant to get their feedback on the options you are interested in. In addition to reading the software reviews you will find online, you will find that your accountant will most likely have experience with several types of software platforms and programs. When you update/change software it can be the ideal time to meet with your accountant to discuss changes that you may want to implement for reporting, updating your chart of accounts, or starting a new data file to allow your software program to work faster.
3. Consider hiring a professional bookkeeper.
Most people aren’t numbers people, and will never be excited about them as much as accountants or bookkeepers are. If managing your own finances is starting to get on your nerves, it’s time to look into hiring a qualified bookkeeper.
Many entrepreneurs have a tendency to try to handle everything themselves. But as with legal matters, the granular elements of small-business accounting aren’t usually within a business owner’s wheelhouse.
Although it’s easy to balk at the expense of working with a bookkeeper, they will be able to help you save money over the long haul. You’ll be freed up to work on high value tasks that keep the business moving forward, while your bookkeeper handles the tedium of number crunching.
4. Stay organized and plan ahead.
The aforementioned tips should help with keeping your finances organized. Moreover, monitoring your finances and projecting future revenue and expenses will enable you to make better long-term decisions for your business. Without this information, planning ahead can prove challenging. If you aren’t looking at the future of your business, you could be taken by surprise. If you want to get ahead and stay ahead of the competition, you should plan as much as 10 years in advance. You’ll be able to mitigate unwanted surprises if you stay ahead of the ball. Even if unexpected expenses do rise, if you’ve been practicing conservatism in your spending, you shouldn’t run into any major problems.
5. Make a budget.
Part of staying organized and planning ahead should include creating a budget. Many business owners view this step as dull and unnecessary, but the importance of a budget could be equated with the value of a well-formed business plan. A budget is not a tool for planning out how every penny should be spent. Rather, it’s a framework that you can use to help you make clear-headed decisions, whether it’s increasing your marketing spend, or cutting expansion costs to keep your profits on track. Make a budget and use it as your guide. Don’t allow it to force you into decisions you don’t want to make, but use it to make adjustments when and where necessary.
6. Find a trusted credit union in your locality.
Credit unions are invaluable to small-business owners, especially since they are often willing to provide loans at competitive rates. Make it a point to seek out the best one in your locality, and make sure they understand your business needs. The partnership could prove immensely beneficial. Some of the other advantages of credit unions include fewer transaction fees and account service charges, as well as flexible, customized services.
Since credit unions are not answerable to shareholders, they are empowered to put your interests at the forefront. Credit unions also keep profits within the community and help budding entrepreneurs get their dream businesses off the ground.