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Crack Down On ‘Independent Contractors’
If your business uses independent contractors, get ready for new scrutiny. Hoping to boost tax revenue, the IRS and many state governments are cracking down on how companies classify their workers, reports CNNMoney.
When employers report wages for independent contractors on IRS form 1099, rather than a W-2, they aren’t required to pay unemployment insurance, worker’s compensation insurance or payroll taxes for them. But the rules governing which workers are genuinely “independent” are strict — and often flouted.
The Internal Revenue Service launched a program last month that will randomly examine 6,000 companies over the next three years for employee misclassifications. The federal government estimates it will raise $7 billion over the next 10 through tighter enforcement.
Photo by contrapart.
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Steven on April 2nd, 2010 1:16 pm
I have a buddy who is in a 1099 only business. He is the head of a Solar Company and this “cracking down” would be killer in his business. He is currently running at over a 50% profit margin, if he were to have to include the various payroll expenses that number would probably dip to under 35%.
Chris Stegall on April 3rd, 2010 7:05 am
From a risk management perspective, we advise our clients to make sure they have a plan in place regardless of the method of compensation or the laws governing the state. Workers’ comp is a classic case of the state legislature and the courts not being on the same page — and business owners get stuck in the middle without a safety net every day.
The courts have proven that business owners will be held responsible when there is a loss regardless of the law. Our process is to identify the risks and form a plan to offset the risk. That may or may not be through the use of an insurance policy.
A business owner does not buy insurance because its a requirement, he buys the coverage for protection from unexpected accidents. A business owner needs good advice and real consultation to help decide if workers’ compensation or some other mechanism is right for him.
Generally, WC, depending on the industry, is an inexpensive alternative to protect not only the business but the owner’s personal assets.
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