If you are not already aware of this you need to be. With the recent economic downturn many employers have begun using independent contractors (1099’s) in place of employee’s (W-2’s) in order to save costs and better align their labor to their business need.
Both the IRS and the states are beginning to crack down on this and auditing firms to make sure these folks are actually independent contractors by their (the governments definition). Here is a good article on this: http://bit.ly/dp4Y3V.
The IRS guidelines for independent contractor classification looks at the relationship from the perspectives of:
1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Visit the IRS website and review their specific information on this subject, http://bit.ly/DLM9O.
If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker along with other charges and penalties.
