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An Employer's Perspective: Florida "Reemployment tax" aka, Unemployment Tax

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An Employer’s Perspective: Florida “Reemployment tax” aka, Unemployment Tax.

Part I of II

by James F. McAuley, Esq.

Who must pay Florida Reemployment tax?

Generally, speaking it’s the difference between a 1099 and a W-2 (on the federal tax level). If you are an employer in Florida and have quarterly payroll of $1500 or more in a calendar year, have had at least one employee for any portion of a day in 20 different calendar weeks in a year, or you are liable for under the Federal Unemployment Tax ( FUT), then you meet the Florida statutory criteria for liability for Reemployment Tax. There are other categories as well, which include Indian tribes and domestic workers.

There are other statutory employers who are liable under the Reemployment Tax Act, such as nonprofit organizations as defined in section (s.) 3306(c)(8) of the Federal Unemployment Tax Act and s. 501(c)(3) of the Internal Revenue Code or if the employer is a county city or joint governmental unit. Reemployment benefits are extended to employees of nonprofit organizations (such as religious, charitable, scientific, literary, or education groups) that employ four or more workers for any portion of a day in 20 different calendar weeks during the current or preceding calendar year.

Understanding who is an “employer” is important. This article will describe what Florida courts look to when deciding this recurring issue. When an employer in Florida concludes their relationship with a worker fits within the criteria for an “employer”, they must register with the Florida Department of Revenue by establishing a Florida Reemployment tax account. This is a quarterly system, so the employment is reported in the month following the calendar quarter in which employment begins. Section 443.1316(1), Florida Statutes (2003), authorizes the Department of Economic Opportunity (DEO) to contract with the Department of Revenue (DOR) to perform the duties of the tax collection service provider and provide other unemployment tax collection services under Chapter 443, Florida Statutes. DOR’s website includes various forms and a brochure entitled “Employer Guide To Reemployment Tax”. (available to download at the end of this article.)

Generally, subject to general criteria noted initially, employers who meet the definition of an employing unit are subject to Chapter 443, Florida Statutes (2003), and are required to contribute to the Reemployment Trust Fund. Under Florida law “Reemployment tax” is collected from “employing units.” An “employing unit” is very broadly defined to mean “an individual or type of organization, including a partnership, limited liability company, association, trust, estate, joint-stock company, insurance company, or corporation……. or the legal representative of a deceased person, which has or had in its employ one or more individuals performing services for it within this state.” An “employing Unit” includes employee leasing companies. Florida has a Board of Employee Leasing companies administered through the Department of Business and Professional Regulation (DBPR). Florida law defines employee leasing as “….an arrangement whereby a leasing company assigns its employees to a client and allocates the direction of and control over the leased employees between the leasing company and the client.” See: s.468.520 (4) Fla. Stat. The use of these companies and Reemployment tax implications will be covered in a separate article (Part II) of this article.

When is this tax paid?

This is a quarterly system, so the employment is reported in the month following the calendar quarter in which employment begins. DEO has promulgated Rule 73B-10.025, entitled:” Reports Required of Liable Employers.” Reemployment tax reports along with related payments must be submitted by the end of the month following the calendar quarter for which the report is due. For example, reports and payments are due by April 30th for 1st Quarter of the calendar year returns. Likewise, the 2nd return due date is July 31st.

How is this tax remitted?

Both paper and e-filing returns are available for smaller businesses. If the business has 10 or more employees, then e-filing is required by DOR. Paper filing is done by use of Form RT-6, Employer’s Quarterly Report. Every quarter a preprinted Form RT-6 is mailed to each liable employer who does not file and pay electronically.

Classification of Workers and Jurisprudence - How Does an Employer Decide?

Misclassification of a worker as an independent agent has implication beyond tax reporting and remission. A wrong choice will also affect claims for reemployment benefits if a worker files a claim for benefits and the employer has not been including the person on the quarterly report. This can cause a delay in benefit payments according to DOR and if done intentionally, then it is a crime. Mistakes in this area can result in very large and unexpected tax liability (upon enforcement through an audit by the DOR) unless proper tax planning is undertaken to structure the business model to avoid it. Employers must determine whether a worker is an employee or an independent contractor, so they are able to include all employees on their Employer's Quarterly Report Form RT-6. Chapter 443, Florida Statutes, governs whether services performed constitute employment subject to the Florida Reemployment Assistance Program Law.

One of most common issues regarding potential Reemployment tax liability is based upon the distinction between an employee and an independent contractor. A very recent decision from the Third DCA focused on an Uber driver, a relatively new job in the new economy. There are some takeaways from the case that can be extrapolated in making tax as well as employment classification decisions. In McGillis v. Dep't of Econ. Opportunity, 210 So. 3d 220, 226 (Fla. 3rd DCA. 2017), the court found Uber drivers to be independent contractors, not employees of Uber.

The Third DCA observed a strong parallel to condominium housekeepers in 4139 Mgmt. Inc. v. Dep't of Labor & Employment, 763 So. 2d 514, 518 (Fla. 5th DCA 2000), in which the 5th DCA determined maids were independent contractors because they controlled the means to completing a job, were free to refuse a job, and could simultaneously “work for others.” (“At the end of the year, the Association gave the maids a Form 1099 ‘Miscellaneous Income’ for the maids to report their income.”). The McGillis court ruled the Uber drivers were independent because they could refuse to work and work for others as well. The Third’s opinion likewise observed: (“For example, Uber sends each driver a Form 1099—an IRS form used to report payments to independent contractors.”) The key factor for determining the number of “employees” an employing unit is liable for reporting and paying Reemployment tax on is the control exercised over these potential employees.

This 2017 opinion also identified the 10 common law elements used by the courts to evaluate (incorporated from the Restatement of Agency and adopted by the Florida Supreme Court Cantor vs. Cochran, 184 So.2d 183 (Fla. 1966)) the “extent of control” in question. “Control” refers to “the right to direct what shall be done and how and when it shall be done.” Herman v. Roche, 533 So.2d 824, 825 (Fla. 1st DCA 1988). Citing the 4139 Mgmt Inc opinion, the McGillis court emphasized, by way of contrast, that “[if] control is extended to the means used to achieve the results, there is generally an employer-employee relationship.

Besides control other factors are listed and considered below. Without discussing each of these in this article (additional discussion will follow in part II) the list itself demonstrates that various fact driven circumstances are considered in evaluating who is an employee. The common law factors considered by the courts include, but are not limited to, the following:

  1. whether or not the one employed is engaged in a distinct occupation or business
  2. the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist
  3. the skill required in the particular occupation;
  4. whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
  5. the length of time for which the person is employed;
  6. the method of payment, whether paid by the time working or by the job;
  7. whether or not the work is a part of the regular business of the employer;
  8. whether or not the work is a part of the regular business of the employer;

These elements are identified and briefly discussed in the Third DCAs 1996 decision in John W. Kearns, P.A. v. State, Dep't of Labor & Employment Sec., Div. of Unemployment Comp., 680 So. 2d 619 (Fla. 3rd DCA 1996). As observed by the court in John W. Kearns P.A., evaluation of circumstances (and in the court’s opinion) controversy depends not on disputed facts but upon the legal relationship that certain undisputed facts engender. Further analysis of these elements and the court opinions will follow in Part II.

Other issues surrounding classification of workers and remission of tax are the following:

  1. What payments are considered wages.
  2. What is a company’s benefit ratio and why is it important?
  3. What is payrolling and is use of a common payroll an issue?
  4. Why is common ownership and control an issue in tax rates?

Take Aways:

  1. If you are an employer in Florida and have quarterly payroll of $1500 or more in a calendar year or if you are liable for under the Federal Unemployment Tax Act (FUTA) you meet the Florida statutory criteria for liability for Reemployment Tax.
  2. One of most common issues regarding potential Reemployment tax liability is based upon the distinction between an employee and an independent contractor.
  3. Misclassification of a worker as an independent agent has implication beyond tax reporting and remission. A wrong choice will also affect claims for reemployment benefits.
  4. DOR’s website includes various forms and a brochure entitled “Employer Guide To Reemployment Tax”.
  5. Generally, employers who meet the definition of an employing unit are subject to Chapter 443, Florida Statutes (2003), and are required to contribute to the Reemployment Trust Fund.
  6. DEO has promulgated Rule 73B-10.025, entitled:” Reports Required of Liable Employers.” Timing of paying tax is also always important. These reports are required on a calendar year quarterly basis. Reemployment tax reports along with related payments must be submitted by the end of the month following the calendar quarter for which the report is due.
  7. Both paper and e-filing are available for smaller businesses. If the business has 10 or more employees, then e-filing is required by DOR.
  8. The initial rate of contribution by an employer is set statutorily at 2.7 percent with the maximum rate set at 5.4%.

About the Firm: Formed in 1991, the Law Offices of Moffa, Sutton, & Donnini, P.A. is a law firm with a primary practice area of Florida tax controversy. With offices in Fort Lauderdale, Tampa, and Tallahassee, the firm defends business owners against the Florida Department of Revenue from the initial audit notice through administrative protest and litigation as well as collections, revocations, and criminal investigations.

Florida sales tax attorney; Florida Sales tax audit; About the Author: James (Jim) F. McAuley is an experienced attorney, joining the firm in 2015 after an exemplary career with the state of Florida. Holding the Florida Bar board certification as a specialist in State and Federal Administrative Law, Mr. McAuley represented the State of Florida for more than 20 years in the area of state and local taxation and administrative law with an emphasis on litigation. Mr. McAuley is Board Certified by the Florida Bar in the area of State and Federal Government Administrative Practice. Mr. McAuley holds the highest rating given to lawyers by Martindale Hubbell (Av) and has maintained that rating for more than 15 years. He is also a published legal author in both State taxation and Administrative law. He is an alumni & author of the Nova Law Review (Fall 2007). You can read more about Mr. McAuley in his firm bio.

AUTHORITY

Sec. 3306(c)(8) Federal Unemployment Tax Act (not for profit organizations)

Sec. 501(c)(3), I.R.C. (not for profit organizations)

Sec. 443.1316(1), F.S. (authorizing FL DOR to manage reemployment taxes)

Sec. 468.520(4), F.S. (employee leasing companies)

Promulgated Rule 73B-10.025 Reports Required of Liable Employers

McGillis v. Dep’t of Econ. Opportunity, 210 So.3d 220, 226 (Fla. 3rd DCA. 2017) (held Uber driver is an independent contractor)

4139 Mgmt. Inc. v. Dep’t of Labor & Employment, 763 So.2d 514, 518 (Fla. 5th DCA 2000) (held maids were independent contractors)

Cantor v. Cochran, 184 So.2d 183 (Fla. 1966) (adopted the 10 common law elements used by courts to determine the “extend of control” question for employee vs independent contractor)

Herman v. Roche, 533 So.2d 824, 825 (Fla. 1st DCA 1988) (control refers “the right to direct what shall be done and how and when it shall be done”)

John W. Kearns, P.A. v. State, Dep’t of Labor & Employment Sec., Div. of Unemployment Comp., 680 So.2nd 619 (Fla. 3rd DCA 1996) (control depends on the legal relationships that certain undisputed facts engender).

ADDITIONAL RESOURCES

FL Reemployment Tax: An Employer's Perspective, Part II, published April 5, 2018, by James McAuley, Esq. BCS

Tax Assessment Unenforceable Under Florida Law?, published April 4, 2017, by James McAuley, Esq.

Debtor’s Prisons and Double Jeopardy in State Tax Prosecutions, published April 19, 2017, by Amanda Levine, Esq.

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