1099 Risk Blog

Contractor Classification Tip #4

Here's the next independent contractor classification tip in our series. Tip #4:

Focus on real protections, and forget term limits. 

Many traditional practices, such as setting term or tenure limits, are virtually meaningless in the face of an IRS audit. In the real world, you can have co-employment risk if a misclassified worker is on the job for just six minutes! Case law precedent clearly demonstrates that practices like setting term limits or having workers incorporate or sign independent contractor agreements are the kind of surface formalities that carry little weight in an audit or lawsuit, where substance trumps form.

Make sure your program is founded on understanding the real risk factors, and presents real IC risk mitigation and compliance solutions. For example, if your compliance program relies on term limits or flimsy contractor agreements to imply that otherwise non-compliant contractors are “compliant,” you have risk. Similarly, just because a worker sets up a shell corporation for $99 on Legalzoom doesn't mean they aren't at risk for reclassification. Forgoing compliance audits on contractors that are incorporated means your independent contractor classification program has a major blind spot that could mean trouble for your organization down the line.

The moral of the story? Abandon snake-oil practices that do little more than create administrative hoops to jump through, and yield no protective effect. Instead, build your program on a solid foundation of fact, not superstition, and continually check your program's foundations against the shifting sands of court sentiment and case law.

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