A "T", or technical foul, is part of the game of basketball. If you’re a fan of the game, you know it’s any infraction of the rules which doesn’t involve physical contact such as unsportsmanlike conduct.
The retirement plan equivalent of a "T" is when an employer misclassifies a worker in situations regarding whether:
- The worker is an independent contractor or an employee, or
- An employee hired through a staffing agency/Professional Employer Organization (PEO) must participate in the client company’s retirement plan covering other employees.
The referee equivalent in these situations could be the Internal Revenue Service, the Department of Labor, State agencies, or all of them who have stepped up enforcement.
The financial consequences of misclassification could be costly in terms of income tax withholding; other employment related payments such as FICA, FUTA, state unemployment, and workers compensation; and retroactive inclusion in the retirement program.
Staying with the basketball metaphor, I cover the issue of independent contractor vs. employee in my recent blog post, Benefits Fouls, for BenefitsPro.com.
The other side of the court involves leased employees and whether they are actually employees solely of the client company or the client company as a co-employer with the PEO. It’s a complicated topic that attorney Charles C. Shulman covers throughly in his article, Leased Employees and Employee Classification, on his Employee Benefits and Executive Compensation Blog.
So if you have any concerns about how you are classifying workers, then take a time-out and consult with your tax advisor. And even if you don’t have any concerns, a periodic review of the status of each "non-employee" might be helpful to avoid a "technical foul".