Using payroll and HR systems to avoid an audit

Using an HR software solution can help employers remain compliant in all tax regulations.

Using an HR software solution can help employers remain compliant in all tax regulations.

The Internal Revenue Service (IRS) is reaching the peak of its business, as the deadline for individuals and businesses to file taxes is just one month away. However, when it comes to companies filing the necessary paperwork, it is important for owners to ensure that they are remaining compliant with local, state and federal requirements.

It's cheaper to have an independent contractor, and as the economic situation becomes more strained, it makes sense for businesses to find ways to cut costs, according to  Lisa Petkun, a partner in the tax-practice group at law firm Pepper Hamilton LLP in Philadelphia.

Ciaran Dwyer, chief executive of 3t Systems Inc., a Denver-based IT company, told the Wall Street Journal that his firm has 65 full-time workers, and that at any given time, there are about one dozen outside contractors. Dwyer said the decision is made based on demand in the industry.

"I'm either going to hire someone full-time to do a job or we just won't do it," he said.

For the last three years, the IRS has partnered with the U.S. Department of Labor to investigate 6,000 employers across nearly one dozen states to see if they are being classified properly. According to the Labor Department, since September 2011, the government has collected $9.5 million in back wages for more than 11,400 workers who were misclassified as independent contractors by their employers.

No company wants to go through an audit, which is why it is important to have the necessary employee tax paperwork in order. Investing in HRIS payroll systems can be extremely helpful. Businesses will not need to worry about remaining up-to-date, as an HR software solution will do that for them. Regardless of whether an organization relies on full-time, part-time or independent workers, HR software can help it stay organized and compliant.