The Department of Labor (DOL) continues to join California agencies and the IRS cracking down on employers who have independent contractors.  Some high level managers at Federal and State agencies believe there should be very few independent contractors, and that most existing independent contractors and 1099 workers are misclassified.  What are the questions the DOL is asking to determine misclassified independent contractors and how can you protect your company and business operations?

Here are a few of the DOL’s focus points:

The duration of the project – If the work being performed has no end date or project completion measure in place, the DOL believes it is much more likely to be an employment relationship and not an independent contract.

Does your independent contractor control profit or loss?  True independent contractors run their own business, and are free to make decisions and deploy assets and resources in a way that creates profit or generates a loss.

Do you pay your independent contractors hourly?  The DOL believes independent contractors should be paid based upon progress upon a project.  If you are paying them hourly they are much more likely to be considered as employees.  Additionally, do your independent contractors invoice you for the work performed?  Genuinely separate companies doing business together would never issues payment unless and invoice was generated.

Do your independent contractors have their own business entity, a separate business account, taxpayer IDs for the company and have more than one customer?  Independent contractors should not receive more than 60% of their income from a single source according to the DOL.  They should have a separate company which they, themselves have established and the start-up funding source must be traceable.  If they don’t have other clients, your company should be concerned about the questions the DOL is asking to determine misclassified independent contractors who should be employees.  Your company could be next.

The most recent business targeted by the DOL and California agencies have less than 50 employees.  If you have independent contractors and issue 1099’s you can bet that a federal or state agency will be looking into your business operations in the next few years.  The cost for misclassification is substantial, and the accumulated costs for an employee or two could be enough to bring your company to financial ruin.

The attorneys at the Watkins Firm can help you to assess the situation and provide insight and guidance that could help you to avoid the loss of your business.  Consider the small LA trucking company who recently had to file for bankruptcy protection after a DOL finding resulted in penalties of more than $200,000 per driver.  We invite you to contact us for a free consultation at 858-535-1511.

Contact a Business Law Or Real Estate Attorney Today

To set up a free, no-obligation consultation with our knowledgeable San Diego business lawyers, call us at 858-535-1511 or contact us online.