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Are my independent contractors really legal?

The last thing any of us want today is a problem with the IRS. Everyone is using more contract help today – 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 here today.

Here’s how I tell if a candidate is an independent contractor or a W-2 employee and why it matters. The IRS is on the prowl when it comes to employers misclassifying W-2 employees as 1099 independent contractors, and if you are a recruiter/hiring authority who runs your own office, you could be in the IRS’ sights. A recent New York Times article warned 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 the more control the client company will have over the contractor’s work, the more likely the worker should be classified as a W-2 employee.

Here are some hints that a worker may be a W-2 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 W-2 employee, you don’t have to handle the employment tasks and issues yourself. No matter where your business is located, a “back-office,” such as 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: How to benefit from the use of contract professionals

Philip Kemper is founder and president of Kemper Associates, a 35-year-old, Chicago-based national executive search firm specializing in permanent and contract staffing for tradeshows 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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