When it comes to employment laws there is probably nothing more important than following the IRS code, and that should be a concern for every small business person. If you run a franchise company, then you are a conglomeration of hundreds if not thousands of small businesses called franchisees. It’s important to monitor your franchisees and make sure they don’t violate the IRS code when it comes to payroll taxes. Too many franchisors let their franchisees pretend and claim that their employees are independent contractors when they really aren’t.
The laws and definitions of what is an employee, and what is an independent contractor are quite specific. And it is very difficult to qualify workers as independent contractors. Perhaps this is a draft law with the Internal Revenue Service, because our government clearly needs money, especially lately, as we witnessed with the debt ceiling debate, and the downgrade of the S&P in our nation’s credit rating. Currently, 40% of our country’s spending comes from borrowed money. Therefore, we need more people working, lower unemployment rate, and thus, more people paying into the system, otherwise our government will not be able to survive.
Over the past few decades, I have observed enforcement of employment laws and payroll taxes on small businesses. Companies that think they’re getting away with something, can only get away with it for so long that our government needs more money, and suddenly there’s a lot of high profile cases of this independent contractor versus employee issue. .
Indeed, I knew for sure this was a problem, because in the early 80’s, before I franchised my company, my company ran 39 cellular service units in 53 cities. I have leased the route, and the vehicle I believe is an independent contractor. Unfortunately, I didn’t realize that I was telling the workers about their times, schedules, routes and how they would perform their services. Basically they are employees, and I have inadvertently and unintentionally violated the law, or the tax code.
This is very easy for small businesses to do, and franchisors also need to take care of their franchisees in this regard. I can remember times when I would visit franchisees, and they would explain to me that their employees were independent contractors, and I would advise them to make sure they had the proper forms, and talk to an attorney about the matter, as it is possible big that’s not the case, and they might later be fined by the IRS and get into hot water with the state too.
As a franchisor, this is serious to me, because if the IRS scores a penalty on one of our franchisees, they may go out of business, therefore pay no royalties, and leave a dead spot in important territory for our brand name. Indeed, hope you will consider all this and think about it.
