Tax Intelligence: The Practice of “Payrolling”
The relationship between an employee and an employer generally exists when the organization for whom the services are performed has the right to hire, fire, and direct/control the individual who performs the services. The foregoing is often referred to as “common law” employer relationship.
The common law employer is typically responsible for reporting, remitting, and calculating employment taxes under its own accounts. There are payroll practices that attempt to deviate from the responsibilities of the common law employer. One of these structures is often referred to as “payrolling”, which consists of either Internal Payrolling or Third-Party Payrolling (often referred to as “Payroll Parking”). The U.S. Department of Labor and state workforce agencies consider the representation by one employer of another employer’s employees as fraud, and significant penalties (civil and criminal) and interest can be incurred when knowingly or inadvertently undertaking payrolling practices.
For more information about “payrolling”, please see our October Tax Intelligence Bulletin, The Practice of Payrolling.