Employee or Not?
This quick post on the Workplace Prof Blog reminds us of the importance of properly classifying employees. I can't tell you how many times someone has told me that there are two types of employees - regular ones and "1099 employees." The notion of a 1099 means that the employer is treating the person as an independent contractor, not an employee. The post identifies an employer in California being sued by the Department of Labor for a mere $900,000 for misclassifying its employees as independent contractors. Here's the problem as I see it:
First, there will be one lonely person who you have classified as an independent contractor. After their "employment" ends with your firm, they will do what most other unemployed persons do - file an unemployment claim stating your firm employed them.
Next, you will try to claim that the person was one of those "1099 employees" (grrrrrr.... makes me crazy) and not a real employee. If you're really smart, you have the employee sign something.
Then, guess what?! - you lose the unemployment claim. Then the real fun happens:
1. First the unemployment compensation audit - oops, you didn't pay enough.
2. Second, the IRS audit - after all, you did not withhold taxes and FICA
3. Third, the workers' compensation audit.....
4. Fourth, the "employee" now wants part of your pension and other benefits plans
5. Oh, and don't forget that lawsuit by the DOL because your records are not in order and you didn't pay over time...
Bottom line, unless you can prove, based on control, that the individual is not your employee - they are! I tend to take a very conservative view of this for the obvious potential headaches listed above.
For more on this subject, go to the IRS Guidance Here.
