Michigan Businesses Should Be Careful When Using Contracts to Say Workers Aren't Employees
Many Michigan businesses use contracts to stipulate with certain workers that they are independent contractors and not employees of those businesses. But, businesses using contracts in this way need to be very careful. Contracts classifying workers as independent contractors instead of employees have no tax effect. The IRS can still reclassify those workers as employees if the business has enough control over them.
In Peno Trucking (TC Memo. 2007-66), the Tax Court addressed the case of a trucking company who used contracts to say certain workers were independent contractors and not employees. Peno Trucking's truck drivers had no investment in the trucks and were directed where to drive. Also, the trucking company paid all the costs of operating the trucks. The Tax Court determined that the drivers were actually employees -- despite their contracts to the contrary -- because the company controlled their work.
Businesses who have issues related to worker classification should consult with a knowledgeable business attorney to ensure they get it right and avoid any nasty IRS surprises.
