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Disputed Status Change Puts Ex-Employees On Hook For Withholdings

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The Tampa Tribune

Published: September 9, 2007

Edgar Derr and his former co-workers used to get paid to clean up other people's messes. Now, the former custodial staffers have turned to the state, hoping to force their former employer to clean up their tax trouble.

Problems arose when they received their tax forms for the 2006 filing period. They noticed their pay was the same as in years previous. But, their former employer, Mondave Services, also known as CPC Janitorial Service, didn't pay their taxes or Social Security taxes.

'We'd received the official W-2 forms with all the withholdings the previous two years. And just this year, out of the blue, he didn't give us W-2s as he should have. He gave us a miscellaneous form,' Derr said.

Employee Or Contractor?

What it means to the workers: They're responsible for paying their federal income tax, Social Security and Medicare withholdings - all expenses CPC Janitorial Service paid in years past. Owner David Barker switched their status from 'employee' to 'contractor'.

Former CPC Janitorial Service workers said Barker never informed them of the change.

'I got that contractors form and sent it back certified mail saying I wasn't accepting it because it wasn't the right form,' said Beth Haisley, a former worker.

'We were surprised when we got the form in the mail saying we were subcontractors,' former worker Dorothy Averso said.

It shouldn't have been a surprise, Barker said. He claimed the former workers who are complaining are 'conspiring' against him.

'We had a meeting at the office, and everyone agreed to become self-employed contractors so they would be responsible for their own taxes,' Barker said.

Barker said that meeting took place in January 2006. Haisley said she remembered the meeting, but no one agreed to the change.

In fact, 'some people said they'd quit before doing that,' she said.

Former workers said they never saw their pay increased to cover the withholdings, a main indicator for changes in worker status, said Gloria Sutton, a spokeswoman for the IRS.

'Employers are saving money by not having to pay for your withholdings,' Sutton said. 'So if you're now responsible for paying your taxes, your pay should go up.'
IRS Assistance Available

The IRS doesn't require notification from a business when a worker's status changes, nor does it dictate the manner the company notifies workers. But it does require companies follow IRS classification rules.

'Employers have very stringent guidelines, which are clear, and there are penalties if these employers change the status of an employee without properly meeting those rules,' Sutton said.

For free, the IRS can help a business determine whether its workers fall under the 'employee' or 'contractor' status, based on factors such as training and instruction, assignments, financial control and who provides supplies and equipment to do the job.

Employers can refer to IRS Publication 15. Employees can fill out a 'SS8' form to dispute a classification change. Both can be found online at irs.gov.

Employers who improperly portray employees as contractors can be subject to audit by the IRS, civil fines, penalties, criminal investigation and prosecution.

Because of the status change, Derr estimated he paid $300 to cover the withholdings. Haisley said her refund decreased about $1,000, and Averso said she paid $1,861.44 in taxes and withholdings. They said they are considering filing a complaint with the IRS.

Barker said he shut down the business last year. Since then, former workers filed a claim for unemployment with Florida's Agency for Workforce Innovation.

Barker is disputing the claim. An agency representative said a final order has not been issued.

If you have a consumer question, call the help line at 1-800-338-0808 between 11 a.m. and 1 p.m. weekdays.

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