If my friend owns a small sawmill business LLC but has been classifying the employees as independent contractors, which they are not, what can they do to him?

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If my friend owns a small sawmill business LLC but has been classifying the employees as independent contractors, which they are not, what can they do to him?

My friend says that if he were to pay all of those extras for example, social security, unemployment, insurance, etc. for his employees that he would make no money at all. He has tried it before and it really is true. This issue has been found out by the IRS. Will they take his business and home? Will they put him in prison? Will they make him pay for all of the years he has not been paying? Is there any way to get out of this situation? We are in Missouri.

Asked on January 14, 2016 under Employment Labor Law, Missouri

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

If he hasn't paid the correct taxes (e.g. withholding, especially for social security) for the employees, the IRS can go after the business *and* him personally: the protection commonly afforded by LLC doesn't apply when the managing or responsible member has failed to pay certain "fiduciary" taxes (taxes paid on behalf of others), like employee withholding (and also sales tax). So if he does not pay or does not work out a payment plan with the IRS, they could put a lien on his home and could also go after other assets of his or of the business. His best bet is to first consult with a tax attorney or CPA right away--someone who could represent him to the IRS--and then try to quickly work out a settlement or payment plan. The longer he waits, the more the in interest and penalties.
Also, the state can go after him for unemployment contributions; and the employees can sue him for  the contributions they should have made on his behalf. Not to be blunt, but if your friend's business is only viable if he breaks the law and doesn't make required payments, it's not a viable business.


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