Did you know that you are not required to pay unemployment taxes on certain types of workers? In general, your business is required to pay quarterly unemployment taxes if it meets any one of the following criteria.
- Pays $1,500 or more in wages in any calendar quarter or has at least one employee during any 20 weeks in a calendar year.
- Acquires all or part of a business that was an employer subject to UI taxes at the time of the acquisition.
- Is liable under the Federal Unemployment Tax Act and has employees in South Carolina.
- Elects to become a liable employer.
- Pays cash wages of $1,000 or more in any calendar quarter for domestic services.
- Pays $20,000 or more to individuals employed in agricultural labor during any calendar quarter.
- Employs 10 or more individuals in agricultural labor for a day in any 20 weeks in a calendar year.
However, there are a few exceptions to these criteria – one of which are independent contractors. You are exempt from paying unemployment taxes on independent contractors because these individuals contract to do a job according to one’s own methods without being subject to the employer’s control.
DEW classifies your workers’ employment status as an employee or independent contractor when you establish an employer account. The decision is based on the employer’s right and authority to control and direct the individual’s work.
The principal factors showing right and authority to control and direct work include:
- Direct evidence of right or exercise of control
- Payment method
- Furnishing of equipment
- Right to fire
Although a contract between parties is considered, the fact that it states the relationship as an independent contractor does not bind DEW in its determination.
Misclassifying an employee as an independent contractor could prove costly for your business. DEW randomly audits employer accounts and if found liable, you will be held accountable for back taxes. If you mistakenly classify independent contracts as employees and pay taxes on those individuals in error, you may request a refund.
If you have questions about the classification of a worker, it’s best to seek clarification from DEW to prevent paying improper taxes. DEW tax field deputies are location in every region of the state and are able to assist you with worker classifications. Visit dew.sc.gov/fieldservice to contact a district office near you.
For more in depth information about employer unemployment tax liability, visit dew.sc.gov/UItax.
For a complete list of situations where you may be exempt on paying unemployment taxes, please refer to the South Carolina Code of Laws, sections 41-27-210, 41-27-220, 41-27-230, 41-27-235, 41-27-260.