How the Hospitality Industry Cheats the Tax System

Author：佚名 Source：none Hits：99 UpdateTime：2008-10-19 0:01:12


Weddings. Galas. Corporate luncheons. Conferences. When big events roll through town, it can mean big money to the places that host them, but it can also mean that they have to hire temporary people to do the things that their staff would normally do like serving food, greeting guests,and mixing your drinks at the bar.

To meet these needs, many hotels, casinos, restaurants, and catering companies rely on staffing agencies when they need a few extra hands on deck. Staffing agency employees may also fill in for any staffing shortages, acting as bartenders, housekeepers, chefs, dishwashers, and hosts on short- or long-term assignments. And, even though the companies are a good idea, some of these staffing agencies are a continual, painful blemish on the hospitality industry due to their tax evasion policies.

And they're not just ripping off the IRS this tax evasion affects taxpayers, the entire hospitality industry, and, ultimately, the hospitality industry employees.

How tax evasion works

The tax evasion in the service and staffing industries is simple: by reporting rightful employees as "independent contractors" to the government, staffing agencies can avoid paying hefty employment taxes.

This means that the employees themselves end up footing the bill for all of their employment taxes, all the while forgoing regular employee benefits like health insurance coverage. Moreover, this tax evasion hurts the entire hospitality industry.

Staffing agencies who properly file and pay taxes on their employees can't keep their prices competitive. And the contracting institutions, like hotels, restaurants, and casinos, may find themselves in sticky legal liability situations.

And that's not to mention the toll this takes on the taxpayers: Tax evading staffing agencies withhold money from public funds while depleting the resources of government assistance programs.

It's important for all hospitality industry professionals to know exactly what they're getting when they hire a staffing agency. Certainly not all hospitality staffing agencies purposefully try to defraud the government. But the ones that do get away with it rely on the hazy, often confusing employment law question of where an employee stops and a contractor begins.

Contractor or Employee?

The IRS has very clear rules about properly classifying employees. Their website, www.irs.gov, has an entire section devoted to the problematic question of contract workers and employees, but the basic rundown is:

Independent Contractors

IRS rule: "An individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result."

This means that an employer can't tell an independent contractor when to be at work, when to leave work, how to do his work, what to wear, etc. The employer can only control the deadline by which the independent contractor's work must be finished.