Compliance Update—October, 2009

We’ve been out in force in various areas of the state as of late and have seen some really interesting situations where employers aren’t following payroll tax laws properly.

In one particularly sad case, we received a call from an employee who complained their employer wouldn’t issue them a W2. They were paid in cash and tax was withheld from their pay as shown on a handwritten pay stub. The employee wanted to file their individual tax returns to claim a refund of their withholding but could not because their employer refused to issue them a W2 even though required to do so under state and federal law.

Our investigator researched this business and discovered that the business was not reporting payroll to the state. We visited the location of the employer and found approximately 20 other employees on the premises. Our investigator interviewed the employees that were present and found that all were being paid in cash and all had been told state and federal taxes had been withheld properly. In reality, none had.

Appropriate enforcement action was taken against the business. Because the business had been doing this for years, a 100 percent penalty was assessed against this employer. This penalty was on top of the tax they had not remitted to the state. Unfortunately for the business, this additional cost could have been avoided simply by filing and paying payroll taxes properly.

In this particular case, these employees had no idea that their taxes were not being properly reported and paid. Ways employees could suspect that their employer might not be following the law include:

1) The employee is paid in cash;
2) The “pay stub” is handwritten; or
3) The employer refuses to issue W2s.

It is important that the employer properly reports and pays payroll taxes so in the event the employee is injured on the job, loses their job, has an issue with overtime, attempts to file personal income tax returns, or has to deal with any other labor related law, the employee is protected.

If you are an employer who is doing business in this manner, contact us for information about how to properly report so you can avoid significant penalties.

If you are an employee and find yourself in a situation similar to this employee, contact us like they did. We may be able to help.

Teetering on the fence of cheating on your taxes?? Think twice about which side you fall on.

You may have heard your neighbors or “favorite” relative boast, “I’ve not paid taxes in years!” or “All you have to do is ‘X’ to reduce your taxes.” and you get frustrated. You’ve been paying your fair share for years and wonder, “How do they get away with this? Doesn’t the state do anything about it?” Rest assured. We do care and we’ve stepped up our enforcement efforts thanks to recent legislation.

As part of recent multi-agency efforts, investigators involved in enforcing tax and employment laws are spending more time in the field looking for violations… violations of employment tax law, labor laws, income tax laws, and licensing and insurance laws. We are very interested in leveling the playing field for those employers who follow the rules.

The cost of violating the law goes beyond underbidding their competitors by the amount of taxes not paid. When, for example, a business pays its employee ‘under the table’ the employee suffers, the potential client suffers, and the violator suffers.

The employee suffers because protections he or she is entitled to in various forms aren’t provided. For example:

• If the employee becomes unemployed, they might be otherwise eligible for unemployment benefits,
• If the employee is injured on the job, workers’ compensation insurance would otherwise be available to them while they recover,
• Income tax withholding is paid as income is earned so the employee can avoid a big tax bill at year’s end,
• A safe work environment, and
• Standards in wage and hour laws.

The potential client also suffers because the violator puts the client at risk for legal responsibility if the worker is injured or dies on the client’s property. The client, by being willing to pay the “lower” price, is unwittingly exposing themselves to significant risk by using a business that misclassifies its employees and pays ‘under the table.’

And, when we catch the business that is misclassifying its employees, the business suffers because they have additional penalties and interest and potentially significant fines charged to them for failure to comply with the laws of the state.

Help us help you. Share with us people you know are paying ‘under the table’ and underbidding you on jobs. Email our Tip Line at ic.info@state.or.us or you can call us at 503-945-8095.

Considering hiring someone to help you? Things you need to know.

In this economy, more and more people are fixing or renovating what they have rather than buying new. So picture this: your appliance repair business is suddenly hopping. In fact, you’re getting so many requests to fix appliances that you can’t meet the demand. So you are considering hiring someone to help. Before you make that decision, here’s some important information that you need to know about hiring an employee and links to related resources.

First you need to determine whether you intend to hire an employee or an independent contractor. An independent contractor generally has considerable control over his or her own work and how it is done. An employee has limited ability to determine his or her own work and the employer has considerable control over how work is accomplished. Basically, if you want to tell the worker when and where to show up for work, what to do, and how to do it, then you probably want to hire an employee. Most workers are employees unless they meet the qualifications of being an independent contractor under the law. For more information about independent contractors versus employees, visit www.OregonIndependentContractors.com.

Once you know you want to hire an employee, check out the Employer’s Guide for Doing Business in Oregon. This guide tells you how to get started. Step one includes obtaining a federal Employer Identification Number (FEIN) from the IRS. Visit the IRS’s website for information on obtaining an FEIN and how to apply for one online.

Next, you will want to register as an employer with the State of Oregon through the Central Business Registry. You may have already registered yourself as a business through this site, so it may be familiar to you. If not, simply sign up and follow the step-by-step instructions to register for Oregon Combined Employer Reporting. Registering for Combined Reporting will set you up with an Oregon business identification number (BIN) for unemployment insurance, withholding tax, workers’ benefit fund, and transit tax purposes.

There are other things that you will need to check into such as obtaining workers’ compensation insurance, reviewing BOLI and OSHA laws, reporting new hires for child support purposes, complying with the ADA, and certifying immigration/naturalization status. But checking out the Employer’s Guide for Doing Business in Oregon is an excellent first step in your decision to hire someone.