Despite signs of recovery after the Great Recession, many remodelers have been reluctant to hire new employees. Instead they've taken to subcontracting to independent contractors, what the IRS calls "1099 workers." But this process can be risky if a 1099 worker is reclassified as an employee. I addition to owing back payroll taxes , plus penalties and interest, an employer can be fined thousands of dollars per occurrence.
The risk of reclassification isn't new, but policy changes have raised the stakes. In Virginia, for example, the Dept. of Labor and Industry recently changed its policy by empowering its inspectors to determine, on the spot, the employment status of everyone working on a construction jobsite. This opens the door not just to IRS penalties, but adds liability for safety violations by the newly-reclassified employees.
For more on this issue, read Shawm McCadden's blog.