Given the new rules under the federal Health Care Reform Act that went into place in 2013, small businesses are smart to be worried about whether a choice to hire writers triggers any kind of new operating cost in the form of health benefits coverage. The federal law definitely makes big changes for any small business employing 50 or more full-time equivalent workers, and a regularly used writer could trigger such a requirement if the business already has 40-something other employees. Here’s how.
Contractor vs. Employee
Most small businesses hire writers on a contract basis. This means the writer is treated as a contractor or a per-task service provider. If the work is more than $600 in a given year, then the business issues an IRS 1099 Form reporting payments to that contractor, and that’s the end of obligations. However, if the small business uses the writer on a regular basis, and dictates every step of the work, there can be argument that the writer is really a de facto employee of the business. The nature of the contractual relationship makes a difference. The IRS doesn’t take kindly to contractor abuse situations because it likes to get income taxes early from workers through employee payroll withholding. Should the IRS find a small business has been using de facto employees as contractors, the finding can trigger a whole lot of back-taxes and penalties on the small business.
Yet, more troublesome is the fact that under the new Health Care Reform Act, the de facto writer worker also becomes a countable employee for the purposes of health benefit obligations on the small business as an employer. Again, where the business has 49 workers or less, this is not an issue. Yet many small businesses hire a number of contractors often to fill in the gap on special projects and periodic work. Those contractor numbers can add up quickly if the IRS finds they are all really de facto employees.
The penalty for a small business is monetary in the form of a business tax penalty on income tax returns starting in 2015. In the first year of the Act, the penalty is manageable, but it is slated to increase by a third to a much larger cost one year later. So how contractors are managed and the frequency with which they are used is very important going forward.
Keeping a variety of contractors handling one-time writing and content projects is likely the better way to avoid any issues with contractors looking like employees to the IRS. It also helps for a small business to hire writers through a content service, adding a third party broker presence between the business and the writer. While this may be a bit inconvenient for working with a given writer as desired, it does definitely help avoid appearances to the IRS that could in turn trigger penalties and application of the Health Care Reform Act requirements as well.
Tom L is a freelance writer available on WriterAccess, a marketplace where clients and expert writers connect for assignments.