Creating an XML Workflow David Alan Rech President, Scribe SECTION 1: THE EMPLOYER-EMPLOYEE RELATIONSHIP Perhaps the most basic decision an employer must make when hiring a worker to perform a service is whether the worker is an employee. Not all workers are employees, and the employer’s determination affects the entire relationship between the employer and the worker. Hiring employees gives the employer the benefits of controlling the methods and results of the work to be done, having full-time workers who work only for the employer, and having workers who have been trained by the employer. The employer-employee relationship also brings obligations—income and employment tax withholding, unemploy- ment insurance contributions, workers’ compensation premiums, etc. This section examines the criteria that determine whether a worker is an employee, as well as the employer’s obligations once the employer-employee relationship is established and the penalties resulting from misclassification of a worker as a nonemployee. This section also outlines an employer’s obligation to determine whether a newly hired employee is eligible to work in the United States under U.S. immigration laws and the requirement to report new hires to state government agencies to aid in their effort to enforce child support obligations and prevent fraud in obtaining unemployment compensation, workers’ compensation, and public assistance. 1.1 Importance of the Determination Under the Internal Revenue Code (IRC), an employer must withhold income, social security, and Medicare taxes from employees’ wages, and it must match the withheld social security and Medicare taxes with employer funds. Under the Federal Unemployment Tax Act (FUTA), covered employers must pay a certain percentage based on each employee’s wages to support federal and state unemployment insurance programs (public sector employers are exempt). There are also many obligations for employers at the state and local level: Most states and many local governments also require income tax withholding from employees’ wages’ All states require most employers to pay “contributions” based on their employees’ earnings into state unemployment insurance funds, from which unemployment compensation benefits are paid. Three states also require employers to withhold unemployment insurance taxes from employees’ wages. Several states require employers to withhold amounts from employees’ wages to fund state disability insur- ance benefit payments and make contributions to the disability plan out of their own funds. A couple of states also require employee withholding to fund paid family leave benefits. Most companies have their own list of benefits and other entitlements they provide to employees as well (e.g., retirement plan, vacations, sick pay, health insurance, etc.). While this is not meant to be an exhaustive list of all the obligations that face an employer once the employer-employ- ee relationship is established, it provides some idea of why the initial determination of a worker’s status is so important, and why many employers use workers who are not employees to perform services for them. 1.2 Employee vs. Independent Contractor PDF
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