Independent Contractor or Employee — How do you tell the difference?
I recently had a client ask me whether he could avoid all the hassle of payroll taxes, withholding, unemployment insurance, workers’ comp, minimum wage, overtime, etc. — just by issuing 1099’s to all his staff and treating them as independent contractors. The short answer? No. I mean, think about it. If it were that easy, everyone would be doing it.
And in fact, many employers are doing this. But they are also taking on a lot of risk. Because if the government finds out — let’s say, because you try to fire the “contractor” and he seeks unemployment benefits through EDD, or he decides he really wants some overtime and files a complaint with the Department of Labor — you can be liable for very large penalties, plus interest on all the payments owed. As anyone who has been through an employee audit will tell you — It’s generally not worth the risk.
So, how do you know whether a worker can legitimately be classified as a contractor vs. an employee? Read more