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1099 Workers - What to Watch For

Many employers use 1099 workers in their businesses. However, to ensure that the IRS and State authorities do not challenge this classification, there are several things you need to be aware of.

Firstly, a 1099 worker is defined as follows: an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.

If you as the employer control when and how the person works, whether you provide the tools to perform their job (such as a computer, desk, etc for a home office), and provide any type of benefit such as pension plan or paid time off then the person is NOT a 1099 worker and you are responsible for payroll taxes for that employee.

Ensure that you meet the Common Law Rules as defined by the IRS which determine the level of independence and control:

  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 a 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?

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

These are necessary steps that should be taken. Otherwise, a challenge by the IRS or State bodies can result in an audit going back many years and you being found liable to pay all related payroll taxes for that time.

If you have questions about the classification of your workers and are interested in what steps you should take to ensure the 1099 categorization is intact, contact the Handle It team who has a dedicated payroll and HR department to help with these situations.

Phone: 833-202-7676 Ext: 1000

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