In October 2010, it was ruled that FedEx Corp. will have to pay the state of Montana $2.3 million due to its misclassification of drivers as independent contractors. After a yearlong investigation, the state ruled that FedEx’s drivers were really employees, not contractors, and therefore the company owed unemployment taxes, penalties, and interest to both the state and the drivers. This is just one example of the recent government crackdown on the misclassification of contractor workers, or 1099 workers.
Decide if Independent Contractors are Right for You
It is each employer’s responsibility to determine if workers are independent contractors, meaning they are self-employed, can control how their services are performed, and acquire their own clients, or employees. There are many benefits to contracting with 1099 workers, including flexibility and lowered costs, which is why more and more businesses are choosing this business route. In 2009, the U.S. Census Bureau reported there were 10.3 million independent contractors in the U.S.
Be Careful When Classifying Contract Workers
Unfortunately, determining the proper classification can be tricky, a fact backed up by a New York Times article that reported up to 30% of companies misclassify employees. When businesses recruit contactors they aren’t required to withhold income taxes or pay health insurance costs, overtime, Social Security, Medicare, or unemployment taxes. So, state and federal governments take it serious when they feel an employer is misclassifying.
Do Your Homework Before You Hire a 1099 Worker
Don’t take a chance on breaking the law and be forced to pay out back taxes and fees. This complimentary white paper from employment experts Express Employment Professionals provides good insight into 1099 workers, the benefits and pitfalls of using them, and how to protect your company. Do your due diligence and research how to classify correctly. Your time is well worth it – to the possible tune of $2.3 million.
If you work with 1099 workers, be sure to download the Independent Contractor White Paper to learn more about classifying workers.
And, feel free to share this white paper with this friendly link: http://bit.ly/1099workers.