Are Your Franchisees Inadvertently Breaking IRS Employee Versus Independent Contractor Laws?

When it comes to employment law perhaps nothing is more important than following the IRS codes, and it should be the concern of every small business person. If you are running a franchising 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 do not violate IRS codes when it comes to payroll taxes. Far too many franchisors allow their franchisees to pretend and claim that their employees are independent contractors when they're not.

The law and definition of what an employee is, and what an independent contractor is are quite specific. And it is very difficult to qualify workers as independent contractors. Perhaps this is by legal design with the Internal Revenue Service, because our government obviously needs the money, especially lately, as we watch with the debt ceiling debate, and the S&P downgrade in our nation's credit rating. Right now, 40% of our nation's expenditures come from borrowed money. Therefore, we need more people working, lower unemployment rates, and thus, more people paying into the system, otherwise our government will not be able to survive.

Over the last many decades, I have been watching the enforcement of employment law and payroll taxes on small businesses. Those companies that think they are getting away with something, are only able to get away with things for so long until our government needs more money, and all of a sudden there are an abundance of high profile cases on this issue of independent contractors versus employees.

Indeed, I know for a fact this is an issue, because back in the early 80s, before I franchise my company, my company ran 39 mobile service units in 53 cities. I had rented out the routes, and the vehicles to what I believed were independent contractors. Unfortunately, I didn't realize that I was telling the workers the time, schedule, routes, and manner in which they were to perform their services. Basically they were employees, and I was inadvertently and accidentally breaking the law, or tax code.

This is very easy for a small business to do, and franchisors need to also watch their franchisees in this matter. I can recall 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 have the proper forms, and talk to an attorney on this matter, because most likely that wasn't the case, and they might later be fined by the IRS and get into hot water with the state also.

As a franchisor this was serious to me, because if the IRS assessed penalties on one of our franchisees, they might go out of business, therefore not pay the royalties, and leave a dead spot in an important territory for our brand name. Indeed, hope you will please consider all this and think on.

Lance Winslow is a retired Founder of a Nationwide Franchise Chain, and now runs the Online Think Tank. Lance Winslow believes writing 24,444 articles by September 4th at 4:44 PM will be difficult because all the letters on his keyboard are now worn off now..