Are My Guys 1099’s or W-2’s?

Another update from the HR Jungle….

Otis runs a lawn care business and has a small staff of permanent employees. During the summer months he hires extra workers as his work load increases. Many of these extra workers take other jobs because Otis doesn’t offer full-time employment.

Otis always treated these extra workers as independent contractors and issued a 1099 to them. As 1099’s, these workers are self-employed and responsible for all employment taxes. Many of these workers don’t want to be considered employees of Otis’ company because they like the bigger paychecks they get now.

Last week one of the temporary summer workers told Otis he talked to a friend who knows someone who says he (the summer worker) should be a W-2 employee.

What should Otis do next?

1. He should review the factors used by the IRS and the U.S. Dept. of Labor to determine if a worker is an independent contractor or an employee. Basically, the more control over how and when the job is done, the more likely the worker is a W-2 employee.
2. If an initial review indicates the summer workers should be re-classified as W-2 employees, Otis should immediately work with his payroll service to reclassify the workers as employees.
3. If Otis isn’t sure how to classify the summer workers based on his initial review, he should seek legal advice on how to classify the workers.
4. He should seek legal advice on the tax consequences of misclassifying W-2’s and 1099’s.

There is no bright line test dividing 1099 and W-2 workers; it depends on the total circumstances. Corporate Compliance Risk Advisor can help Otis do the initial review of the factors and gather the information needed by the attorney who will give a legal opinion to Otis.

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