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Are my independent contractors really legal?

The last thing any of us wants is problems with the IRS. Everyone is using more Contract help, It’s the most efficient way to get through this recession. Yet hiring “temporary” and “independent contractors” the wrong way leaves us wide open for IRS scrutiny and possible
prosecution and heavy fines. There’s a right way, a most cost-efficient way to do it, and we discuss it in this column.

The IRS is on the prowl when it comes to employers misclassifying W2 employees as 1099 Independent Contractors, and if you are a recruiter/hiring authority who runs your own back-office, you could be in the IRS’ sights.

A recent New York Times article warns that the IRS is cracking down on worker misclassification, and if you get caught in the crossfire, you could end up paying hefty fines and damaging your firm’s reputation.

So how do you avoid an IRS smack down?  The IRS has outlined three main criteria for determining correct worker classification that you will want to refer to whenever you are in doubt about how to classify contract candidates.  The main thing to keep in mind is that the more control the client company will have over the contractor’s work, the more likely that the worker should be classified as a W2 employee.

Here are some hints that a worker may be a W2 employee rather than an Independent Contractor:


  1. The company dictates how, when, and where the work must be performed.
  2. The company provides equipment and tools.
  3. The worker is not providing services to other companies.
  4. The company reimburses expenses.
  5. The worker is paid on an hourly or weekly basis rather than a flat fee for completing the project.


Remember, if you do determine that a contract candidate should be classified as a W2 employee, you don’t have to handle the employment tasks and issues yourself.  No matter where your business is located, a “back-office,” like Kemper Associates, can become the employer of record, handle all payroll, deductions and reports and relieve you of the stress associated with maintaining (legal) contract employees.

See you here next month for our article, “Using contract specialists is easy and profitable.”

Philip Kemper is Founder/President of Kemper Associates, a 35 year old Chicago-based national executive search firm, specializing in Permanent and Contract staffing for Trade Shows and Exhibits, Staging and Equipment Rental, Business Meetings and Events Production, Video, Training and Incentives and more .His more complete bio is on LinkedIn at: http://www.linkedin.com/pub/philip-kemper/2/795/308/ . You may view Kemper Associates’ web site at: www.Kemperassociates.net , and contact Phil with questions or comments, and employment needs at: Kemperassoc@hotmail.com, or his private phone line: (312) 944-6551.

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