Do You Work For Us?… Are you an Employee or 1099?
Picture this scenario. We are a small company. We need an IT expert to help us make sure the software is up-to-date, the anti-virus actually works, someone who can reset passwords and set up new computers. We most certainly do not need a full-time employee – there probably is not enough work for a part-time position. We need someone who can come in once a month to check up on things; maybe once a week when we grow. Bob in Customer Service has a friend who can do this for us. He is a retired IT guy and has a few other companies he goes to.
Biz on a Handshake?
So, we hire Bob’s friend John as a 1099. Nice enough guy, comes in when we ask, does a good job. Is he an employee or an independent contractor? Can we do business with him on a handshake? Few months in John IT is getting more and more requests for his services. Not enjoying his retirement the way he wants, he hires three staff to help him out and sends a new person to our office once a week. Can he do that?
Where’s the Agreement?
Well here’s the deal. Companies hire independent contractors all the time to help out with things like IT, Human Resources, Accounting, Maintenance, Consulting and the list goes on. There is nothing wrong with that. What most companies do not do is have the Independent Contractor sign an Agreement that they are an Independent Contractor and not an employee. You need more paperwork than just the W-9 for the file. You ask, “Why? We have been doing business like this for years and never had a problem.” Answer: you have been lucky!
Anyone who your company hires to perform services and is not paid on payroll, needs to have an Independent Contractor Agreement in place. Basically the Agreement should state they are not an employee of your company, they are responsible for all taxes, they are not entitled to any benefits offered by your firm, and it will allow you to ask for proof of insurance such as Professional Liability….and if they employ anyone besides themselves — Workers’ Comp.
The best scenario to have is a service provider that is a Corporation or LLC. If a check is made out to an individual such as John IT, it will send a red flag to an auditor. The first auditor to notice will more than likely be the Workers’ Comp auditor during your annual audit. They will ask to see any Agreement in place, invoices, and Certificates of Insurance. If they do not have Workers’ Comp they will more than likely include them in your policy.
You say that’s not so bad. But what about taxes, benefits, unemployment insurance? What if John IT has not filed or paid his federal or state taxes? The IRS tracks his income to your company. Guess who will be contacting you or making a visit to your office?
What if John IT fires the worker that comes to your office once a week? The worker files for unemployment but John IT has not been filing unemployment tax. Unemployment asks the worker, where did you work?
What happens if one of these agencies determines that the Independent Contractor was actually your employee? Not only will you receive a fine but you will need to pay their back taxes and provide any benefits that other employees in the firm are entitled.
To protect your firm, have everyone that receives a 1099 sign an Independent Contractor Agreement. Ask to be listed as an additional insured and receive a copy of the Insurance Certificate. Need help sorting this out? Contact us: firstname.lastname@example.org
Compass Workforce Solutions can help. Call our office, speak to a human resource professional about your company’s policies or employee handbook at 631.794.7400.
This is not legal advice and will not cover all situations and circumstances