According to SIA's recent survey of companies that use contingent workers, fewer than one in five are confident that all their 1099 independent contractors are properly classified. Worker classification is a very important issue in contingent workforce management, and refers to whether a given worker is classified as an employee or as an independent contractor.
While the IRS provides a Three Areas of Control test to help determine proper worker classification, different regulatory agencies at the Federal and state levels have different methods for determining classification, so the IRS factors are not the only consideration for deciding whether to pay a worker on a 1099 or W-2. There is no definite, end-all independent contractor test, and in many cases the lines are fuzzy.
What's more, businesses are challenged to properly classify workers regardless of size or sophistication. In the SIA study, rates of compliance were fairly consistent across organizations as a function of company size or as a function of VMS use or MSP use. This means that even enterprises with centralized, managed independent contractor compliance programs still lacked confidence in their 1099 compliance.
Does your company engage independent contractors?
Are you confident in your 1099 compliance, or, like the majority of businesses, do you have risk when it comes to worker classification?
For more learning, watch this video webcast on Vimeo, Independent Contractor Compliance: What You Need to Know, or visit our 1099 Compliance Center.