Employee or Independent Contractor?Written by Tony Novak
Small business owners and self-employed individuals often need to deal with complicated and often confusing issue of distinguishing between “employee” and “independent contractor” status. This issue is especially important to growing number of individuals working from home. Usually goal of businessperson is to justify an independent contractor status while IRS prefers to assert an employer/employee relationship for wage tax purposes. But you may wish to retain eligibility for certain employee benefit plans, even if you may be considered a contractor for wage tax purposes.There are potentially serious consequences for making a mistake in this area. If IRS reclassifies a worker as an employee, employer may owe all of retroactive wage taxes immediately – even those not collected from worker! There may be additional interest and tax penalties. When a mistake is discovered in an employee benefit plan, plan administrator may refuse to convey benefits to a worker who is not eligible for benefit. This could be disastrous in case of a business life insurance or health insurance plan. Since there are no absolute rules in this area of business management, it is always wise to consult with your own financial and tax adviser. The rules used to determine status for wage tax purposes do not apply for eligibility in employee benefit plans. It is possible to be considered eligible for an employee benefit plan but actually be treated as a contractor for wage tax purposes. The opposite is also true – you may not be eligible for employee benefits but still be considered an employee for tax purposes. Determining eligibility for employee benefits is actually much easier – this is stated clearly in written plan description for each individual employee benefit. Just be careful not to assume that classification for one issue has any effect on determination for another purpose. If your goal is to make sure that a work arrangement is really a contractor relationship, most effective thing you can do is to send a letter to your contractor which details relationship and addresses each of topics addressed below. Get other party to acknowledge letter and to hold a copy of letter in their records as well. Best of all worlds is to have a written contract in which topics in my letter would be incorporated. In either case, make sure you DO what you write.
| | Using Consumer Reports' Health Plan RatingsWritten by Tony Novak
It has always been difficult for consumers who purchase health insurance to find meaningful data on quality of available plans. It has been even more difficult, I think, for a health insurance buyer to translate published data into conclusions relevant to their own purchasing situation since most individual and small business purchasers have different concerns than majority of employees of larger corporations. Much of available data just is not relevant to individuals and small businesses. But now "king of all ratings" - Consumer Reports Magazine - has spoken on issue of health insurance plans, I think it makes sense to defer to them and consider how this well-known rating system might be useful for buyers of health plans. Consumer Reports published a review of Health Maintenance Organizations (HMO) and Preferred Provided Organizations (PPO) health plans in their October 2001 issue. The report is available free online. Like most other CR reports, you have to be knowledgeable in subject material and really read between lines to get true value of ratings report. Since my company MedSave.com doesn't handle HMOs and I personally don't like them, I skipped that section. The report on PPOs is likely to be much more interesting to most individual or small businesses buyers of health insurance. Certainly HMOs are right answer – or even only answer - in some situations, but I just think that “quality shopping for a HMO” is an oxymoron. But flexible design of PPO plans in today’s market makes it is more likely that a shopper will find an attractive value in a PPO plan rather than in an HMO. Six of seven top-ranked PPO networks are operated by local Blue Cross associations. This is good news unless you happen to be among of majority of Americans who does not live in one of these six geographic service regions, or you can't afford generally high costs that come with a premium Blue Cross/Blue Shield health plan. This is most significant result of CR report: Blue Cross PPO networks are doing a good job satisfying their members. Certainly these are premium-care, premium-cost plans. Unfortunately, with average family premiums well above $700 per month, many individual and small business buyers simply cannot afford cost of these plans.
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