Tips can help with compliance for contract worker regulations

Plan now to simplify year-end tax preparation
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Jun 01, 2004

Veterinary hospitals commonly use contract workers throughout the year.

Spring and summer months especially bring opportunities for lawn services, maintenance and repairs and landscaping projects.

During the course of the year, most veterinary hospital administrators will engage the services of at least two or three individuals or companies who provide a variety of services, but are not hired as employees of the practice.

Be aware of rules Since paying "under the table" is never a good idea, you should be aware and careful of the many rules controlling contract worker reporting.

First, you should be familiar with guidelines that suggest when an individual should be hired as an employee as compared to when that person can be deemed a contract worker. Although many times the relationship between practice and worker is very clear, other times the relationship may be a bit gray.

DVM Newsmagazine has previously published articles about the common-law rules the IRS uses as guidelines for determining when an individual is not a contract worker but an employee of the practice. Also, visit http://www.IRS.gov/contract/ workers.

Be conservative In general, you may like to err on the side of conservancy if there is any question as to the person's relationship.

For example, if the individual is the sole worker (not associated with any company or does not have employees himself/herself) and works a substantial number of hours for your practice, you may wish to simply engage the person's services as a full-time employee.

If the individual is not, injury on the job may lead to troublesome debate about whose insurance is responsible, and whether worker's compensation is an issue.

What are some specific documents with which you must comply once you have decided the individual does fall within the realm of being a contracted worker or representing an unincorporated company providing services to your practice? Typically, service providers fall in the following list:

  • Janitorial services
  • Handymen/women
  • IT and computer support companies or people.
  • Landscaping and lawn services
  • Snowplow service
  • Electricians, plumbers, and HVAC workers.
  • Attorney and law firm (whether unincorporated or incorporated).
  • CPA, bookkeeping and non-CPA accounting services.
  • Practice management advisors and consultants.
  • Dry cleaners
  • Relief veterinarians
  • Veterinary specialists, either visiting your practice or for remote consultation purposes.
  • Manure removal services
  • Final arrangement service providers (crematories and cemeteries.)

We strongly advise obtaining the contractor's taxpayer identification number (TIN) before engaging services. If you forget, ask your bookkeeper to ensure that no new service provider is paid until the point you receive the TIN.

The best way to collect this information is to provide the contract worker a form W-9. This form requests the correct name of the worker and associated TIN. Furthermore, the form asks for the worker's certification that he/she is exempt from back-up income tax withholding.

As a reminder, Internal Revenue code section 6109 (a)(3) requires your practice (as the payer) to request the worker's correct TIN. The TIN must match the payee's name and be included on all information returns submitted to the IRS. The annually required information return typically used by the veterinary practices for reporting payments to contracted workers is the form 1099-MISC.

Be aware that payers who file information returns with missing, incorrect or mismatched TINs to the payee's name are subject to penalties for failure to file the correct information.

Get it upfront Obtaining the form W-9 upfront is the best way to ensure that you have the correct reporting information at the point filing is required in January of the subsequent year. Immediately review the submitted form W-9 to assure all information is legible, since you will be relying on it later. In the event you have failed to obtain the information in the past, and do file incomplete or erroneous information returns, you will most likely receive notice from the IRS.