Red Flags for Independent Contractor Misclassification

The federal government continues to crack down on companies that misclassify W-2 employees as 1099 independent contractors (also known as independent contractor misclassification). If you make contract placements, then your clients may expect you to advise them on how to correctly classify their workers.

Forget a moment about the fact that these might be workers you did NOT place with them. If a client asks you to advise them, it’s a perfect opportunity to position yourself as a trusted advisor. The more a client trusts you, the more likely they will be to give you job orders to fill. (Those job orders could be either contract or direct hire . . . or both.)

Fortunately, the Internal Revenue Service provides a test that can be applied to determine proper classification. That test is broken into three main categories:

  1. Behavioral control
  2. Financial control
  3. Type of relationship

You can read more about this test by clicking here. (“Topic 762 – Independent Contractor vs. Employee” was last reviewed or updated on June 30, 2016.) The more control a business has over a worker, the more likely that worker is an employee and NOT an independent contractor.

Waving the misclassification flag

Below are some other red flags indicating that an independent contractor should really be a W-2 employee:

  • The independent contractor will convert to a direct hire after the contract assignment ends. A better way for companies to try a worker out before committing to a direct hire is to bring on a contractor placed by you and employed through a contract staffing back office, such as Top Echelon Contracting.
  • The independent contractor is doing the same work as in-house employees.
  • The independent contractor is taking direction (instructions) from the company.
  • The independent contractor is only working for one company.

Don’t let independent contractor misclassification threaten to derail your clients or the contract placements you make with those clients. Position yourself as a trusted advisor and offer solutions. When you make contract placements through Top Echelon Contracting, we become the legal W-2 employer of record. That means no misclassification. No potential IRS audits. No headaches.

Make contract placements and enjoy the consistent cash flow. Outsource the back-office to Top Echelon Contracting. Do what you do best and let us take care of the rest.

Previous Back to Blog Next