WorldWide Drilling Resource

Drilling Into Money Not Boring by Mark E. Battersby The Two Sides of Independent Contractor Misclassification Employers have long preferred to treat workers as independent contractors, reaping payroll tax sav- ings, no fringe benefits, or other expenses associated with employees. By the same token, workers - in- cluding the owners of many drilling businesses - could potentially lower their own tax bills by shifting from being an employee to independent contractor. Drilling businesses that want to reduce costs by using independent contractors need to be sure these workers really aren’t employees. And, while the 2017 Tax Cuts and Jobs Act contained a special 20% deduction from the income of independent contractors operating pass-through businesses, such as S Corporations, LLCs, and partnerships, many workers, as well as business owners, are eyeing the lower tax bills which might result from shifting from being an employer to independent contractor. Obviously, this is not an easy decision. First, the 20% deduction from pass-through income generally occurs only as long as taxable income is less than $157,500 for an individual or $315,000 for those filing jointly. What’s more, switching to inde- pendent contractor status might mean the loss of valuable benefits normally provided by - and deductible by - employers. Although independent contractors are a proven way for employers to achieve workforce flexibility and save money, they are also a popular strategy providing drilling professionals a great deal of flexibility and, in many cases, lower tax bills for those choosing inde- pendent contractor status for them- selves. Those lower tax bills and the difficulty in determining who is and who isn’ t an “ independent cont ractor, ” explains the “misclassification” crack- down. Generally, a worker doesn’t qualify as an independent contractor if he or she performs services which are con- trolled by the employer. The relationship itself is another factor. Are the individ- ual ’s services a key aspect of the drilling operation’s regular business? How do the individual’s assignments compare to those of the operation’s full- time worker/employees? Fortunately, the Internal Revenue Service and the courts look at the total- ity of circumstances. In other words, if all the criteria point toward the worker being an independent contractor, the fact the worker is paid by the hour won’t necessarily turn this into an employer/ employee relationship. Just as every business should be careful to distinguish between employ- ees and independent contractors, so should every drilling business when choosing independent contractor status as a pass-through entity. Professional assistance may be required to ensure you and/or your workers are clearly “independent contractors.” Mark Mark E. Battersby may be contacted via e-mail to michele@ worldwidedrillingresource.com 43 WorldWide Drilling Resource ® MAY 2019