Risk Assessment & Mitigation

Minimize the Risk of Using Contractors and Consultants

While contractors, consultants, and freelance workers represent a convenient and cost-effective way to keep your business flexible, their use can incur serious risks for your business. Without an experienced partner to help you navigate the legal details of using contingent workers, your business could be setting itself up for substantial fines, Sarbanes-Oxley violations, or even class-action lawsuits.

But it is possible to use contractors safely—even ones you find on your own.

With over 20 years of experience administering the contingent workforce, MBO Partners understands the complexities of 1099 risk. Our experts can assess your business, localizing problem areas and offering solutions to mitigate your risk.

Eliminate IRS 1099 Reclassification Risk

Engage contractors as 1099's? Be careful. The IRS claims to lose nearly $350 billion a year* in unpaid taxes, with $39 billion attributed to underpayments or non-payments by independent workers. IRS agents are very motivated to make sure businesses only engage contractors who comply with their requirements for independent contracting.

Usually, W-2 employment for your contractors is the best choice. Individuals who work as W-2 employees—from whom taxes are withheld—eliminate the risk posed by 1099s and sole-proprietors whose tax payments are not guaranteed. And while it is the individual contractors who are responsible for their taxes, the IRS finds it more effective to pursue compliance at their client companies.

If the IRS finds your business is using non-compliant contractors, it can reclassify them as W-2 employees. And when that happens, look out: Penalties include back taxes, with interest, plus a fine of between 12% and 35% of the total. These penalties can easily stretch into the millions of dollars.

MBO Partners eliminates reclassification risk by assessing your contractors for compliance with IRS regulations for independent contracting and offering safe W-2 employment to those not in compliance. MBO Partners also provides General Liability, Workers' Compensation, and other required insurances, all of which further reduce risk.

What if contractors resist converting to W-2?

MBO Partners has designed its services for contractors to appeal to even the most independent professionals. We successfully convert over 95% of client-referred 1099 contractors to W-2 employment. This gives clients the peace of mind of knowing they can introduce the risk-mitigating services of MBO Partners without alienating their contractors.

* 2001 data used. This is the most recent year for which "tax gap" data has been complied.