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New Facts on 1099s (Independent Contractors)

Written on April 12, 2012 at 5:07 pm, by HRDyn

The Federal government has publicly stated that the misclassification of employees as independent contractors costs $2.72 billion in lost tax revenue.

Simply put, both Federal and State government plan to crack down on employers who improperly call what are actually employees, “independent contractors”.

“Misclassification” is the government's term for not abiding by the IRS definition of an independent contractor. If the employee is requested to work specific hours and is directly supervised by the employer, then the worker can not be considered an independent contractor (the IRS publishes a long list of requirements a worker must meet to be considered an independent contractor).

Some additional statistics on this issue are:

  • In December 2011 alone, 30% of employers using independent contractors mistakenly classified them that way.
  • During 2011 the DOL Wage & Hour Division hired an additional 90 investigators and upped their budget by $244 million with the goal of uncovering new FLSA violations. 
  • For every dollar the Wage & Hour Division spends investigating employers for misclassification, it gets $7 back in fines and penalties.

It can be tempting to just “1099” a worker, especially those who might only work seasonally or work during peak periods, but the “savings” are not worth the risks. Unless the “contractor” has other clients, has his/her own business, pays their own expenses, and is not required to work pre-specified hours, the employer should “hire” the worker and pay FICA, unemployment and in most cases, workers' comp.

HR Dynamics interacts almost daily with employees who have “1099 issues”. Temporary staffing with a well respected agency is considered a viable solution to the 1099 problem.

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