Proper Worker Classification

Proper worker classification is crucial for compliance with labor laws and tax regulations. As an employer, it is vital to properly classify your workers as either employees or independent contractors and to provide benefits and protections to each group. Employees are entitled to various benefits and protections, such as minimum wage, overtime pay, workers' compensation, unemployment insurance, and other benefits provided by the employer. You may read about more about that classification here: https://www.irs.gov/newsroom/worker-classification-101-employee-or-independent-contractor.   Misclassifying employees as independent contractors can lead to violations of labor laws, including the Fair Labor Standards Act (FLSA) and state-specific employment laws. 

The Greenshades HR/Payroll platform was designed for employees.  Many of its webpages contain terminology specific to employees, such as “employee” and “employee address” and “employee net pay” and so forth. We understand that some of our customers use our platform for both independent contractors as well as employees. Using our platform for this purpose is not illegal, but it is essential for these customers to ensure that this platform and its labelling does not create confusion or mislead any independent contractors into thinking that they are employees. Proper classification, clear communication, and transparency to your workforce is the responsibility of the employer, regardless of what software you choose to use. 
For those customers who are confident that they have properly classified their workers and are further confident that they have properly communicated status to their independent contractors, this guide will provide adjustments on how to use the Greenshades Online platform for their contractors. 

Setting up a Contractor Workspace

You will keep your contractors into a different Greenshades workspace from your employees.  As such, the first step to using the Greenshades Online platform for your contractors is to set up a separate workspace for those contractors. 

• When setting up a separate workspace, we suggest using a name that includes the word “Contractors” in its title (for instance “Acme Contractors”).  
• You may use any number for the corporate Tax-ID: taxes will not be filed from this workspace 
• You may then complete all of the normal steps and wizards when creating the workspace (setting up company address, location, bank account, etc.).
• If you choose to use the Greenshades Onboarding module, disable the I-9 and W-4 collection steps. 
   

Setting up Workers

The terminology on the Greenshades Online portal will list “Employees” (as described in the introduction to this document). As such, you will set up your contractors under the employee section of Greenshades Online. 
•    On the employee card within Greenshades Online:
o    Work Hours Per Year should be 0
o    HR Status should be “Other”
o    Employment Type should be “Other”
o    Everything else should be set up as normal

Setting up an Earning Code

• On Code Details: Set the wage type to "Tax Exempt"

• On Calculation Details: Set the Earning Category to "Business Expense"
• On Calculation Details: Set the the Rate Type to "Fixed Amount"

The rest of the earning code may be set up as normal 

Paying Contract Workers

You will use the Greenshades Payroll functionality within this workspace as normal: create schedules, assign workers to schedules, run payroll, print checks or complete ACH to the direct deposit accounts of the workers. Because the earning codes have been set to tax exempt, no tax will be withheld from these paychecks, which is appropriate for independent contractors. You may reference the other articles within this knowledge base for further information on using the Greenshades payroll module.

Taxes and Reporting

• Ignore all “Tax Service” or “Tax Filing Center” prompts from this workspace
• At end-of-year, customers will export pay data from the payroll reports on this workspace and import that data into the Greenshades Year-End Forms module to create 1099 forms. These 1099 forms will then be available for manual distribution or the Greenshades print-and-mail service.

Contractor Backup Withholding 

• There is no “backup withholding” tax within the Greenshades Payroll. Backup withholding amounts should be set up as deductions within the Greenshades system.
• At the end of each pay run, these deducted amounts will need to be manually paid to the IRS using the EFTPS system.

Vendor New Hire Reporting

• Greenshades’ platform will not create new hire reports for your contract workers. Greenshades Online will prompt and create New Hire returns for standard employees without issue.