Since 2011, the government has collected over $9.5 million in back wages from upwards of 11,400 misclassified workers. Employers are responsible for properly classifying the workers on their payroll and those who are unclear could suffer huge backlash fines from the IRS. So do you have an employee or a contractor? Skip the lengthy IRS jargon and allow Intuit to break it down for you in this easy to follow infographic.
According to the data, an estimated 10% to 60% of workers are misclassified as independent contractors. The IRS says, “In general, someone who performs services for you is your employee (W-2) if you can control what will be done and how it will be done.” A 1099 Contractor sets his/her own hours, sends invoices for work completed, can work for multiple companies, does not receive company benefits, and is responsible for paying his/her own taxes to IRS and state tax department.
While contractors can save up to 40% on labor costs, employees offer a long-term investment with more loyalty and knowledge of the business. Re-assess your employees and contractors with these guidelines to avoid steep fines from the IRS later down the road.