Recently, one of my clients was faced with an Unemployment Insurance Audit (UIA). The target of this audit was the company’s contracted services; in agriculture this is often called “Custom Hire”. The auditor inspected payroll tax returns and unemployment returns for the audit period. Questions raised were:
- Was form1099-MISC issued to the persons held as non-employees?
- Did the non-employees provide their own tools?
- Did the non-employees hold themselves out as a business?
- Did the non-employees have any other customers?
- Did the non-employees have a website or issue invoices?
- Did the company supervise their work?
- Did the company set the hours for their work performed?
It appears the UIA has not looked at the agriculture industry in a while and are making a concerted effort to audit more agriculture entities.
In agriculture, employers that file a Federal form 943, in place of a traditional form 941, do not need to file a Form UIA 1028 until they pay wages of $20,000. This must be in a calendar quarter for the current or preceding year.
If a business has at least ten agricultural workers for twenty different weeks (current or preceding calendar year) they are subject to the UIA tax. The weeks do not have to be consecutive. And, the twenty workers can be different people. If you are close to the wage threshold, this can be especially important as the tax, penalties and interest come into play. If the auditor finds issues, they can open up the prior two years as well. Therefore, it is recommended to acquire social security numbers from non-workers up front if a 1099 or W-2 is necessary. Penalties increase when social security numbers are not available.
The State of Michigan Department of Licensing and Regulatory Affairs Unemployment Insurance Agency (UIA) office has a form UIA 1015 available for use to help with this determination.