Are Your 1099s Classified Correctly?

Classifying your employees is essential to maintain compliance and decrease significant liability. It’s especially important now because the Biden administration is expected to increase scrutiny on employee classification. The Department of Labor identifies a couple of key aspects to examine in determining worker classification.

1. The extent to which the services rendered are an integral part of the principal's business.

2. The permanency of the relationship.

3. The amount of the alleged contractor's investment in facilities and equipment.

4. The nature and degree of control by the principal.

5. The alleged contractor's opportunities for profit and loss.

6. The amount of initiative, judgment, or foresight in open market competition with others is required for the success of the claimed independent contractor.

7. The degree of independent business organization and operation.

We’ve compiled a couple of quick and easy questions to double-check if your contractors (1099s) are correctly classified. You should run each worker you have through these questions to see if they qualify as a 1099 contractor.

Behavioral Control

1. Does the company direct and control the worker’s work?

2. Does the worker receive training or instruction?

   If you answered yes to either of those, then it's a questionable 1099 relationship.

Financial Control

1. Does the worker invest in tools or facilities to do their job?

2. Does the worker able to profit or lose from their service?

3. Does the worker have unreimbursed expenses?

4. Is the individual typically engaged in other income-earning services outside of those done for the company in question?

   If you answered no to any of those, then it's a questionable 1099 relationship.

Type of the working relationship

1. Is there a written contract between the parties?

2. Is it a temporary relationship?

3. Are the services outside the course of typical business operations?

   If you answered no to any of those, then it's a questionable 1099 relationship. If you’re unsure, feel free to set up a free consultation with us and we can help examine the relationship with you!