When you hire individuals as independent contractors, not only can the individuals sue you for mis-classifying them, the State of Virginia can bring action against you. Watch the video for more details.
In previous posts (Part 1, Part 2, Part 3) I described portions of the new laws in Virginia that are guiding the relationships among independent contractors and the persons (companies) that hire them. I mentioned that the law now permits the individual to sue the company that pays that individual as an independent contractor if the individual believes they are mis-classified. Under that right of action, a court decides whether the individual is properly classified, using IRS Guidelines on the topic.
But in a separate part of the new Virginia laws (Title 51.1, Chapter 19, which take effect on January 1, 2021), the State’s Department of Taxation may also take action against you (technically, against your company) if you pay an individual as an independent contractor. Such individuals are automatically considered employees unless your company (the payor) or the paid individual demonstrates that the individual is an independent contractor according to the IRS Guidelines.
So the state allows the individuals to prove they are independent contractors–but that must be proven according to the IRS guidelines. It is not enough that both the hiring company and the individual want their relationship to be considered one of independent contractor status. And failure to properly demonstrate the independent contractor status results in fines and back taxes assessed against the paying company (not against the individual who also wanted to be classified as an independent contractor).
Summary: The Legislature of the Commonwealth of Virginia is basically forcing all individuals who want to be treated as independent contractors into forming their own companies. Sole proprietorships for independent contractors are going to be permitted only on a case-by-case basis after proving that the IRS Guidelines are being followed.
As always, I must remind you to seek legal advice from your own attorney. The facts of your situation may lead to different conclusions than the ones presented here. These articles are published only for educational purposes, and they do not create an attorney-client relationship.
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