1099 Risk Blog

Contractor Classification Tip #5

Here's the next independent contractor classification tip in our series. Tip #5: 

Use the right engagement method.

After you've accurately assessed the status of your independent contractors, you must select the correct engagement method for your compliant and non-compliant contractors. To accurately assess but then incorrectly engage contractors defeats the purpose of doing contractor compliance in the first place, but we're surprised how often we encounter this practice.  Engage non-compliant contractors . . .  

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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 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.

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Contractor Classification Tip #1

With the new year afoot, MBO Partners would like to offer you our quick series of essential tips for proper independent contractor classification. Here's our first tip, as we've found a contractor compliance program is only effective to the degree you actually run compliance on anyone who might be subject to reclassification.

Tip #1:

Run compliance on all incumbent and new contractors. 

Even small corporate entities of one or a few employees could be subject to reclassification. Compliance must therefore be run on all your 1099s, including self-incorporated consultants and small Statement of Work (SOW) vendors or project teams. To minimize the business disruption, consider a phased approach starting with new contractors, and once that part of the program is under control, begin to run compliance on your incumbent contractors with each new work order or contract renewal.

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