Updated: Apr 21, 2022
Are you wondering if you can legally pay your workers as independent contractors? If so, you are NOT alone. Sending someone a 1099 at the end of the year is so much easier than payroll taxes and employee management!
Sadly, it falls to me to give you the unfortunate news that it is VERY unlikely you can legally pay your workers as independent contractors. They are, in all likelihood, employees of your organization.
Worker classification is determined largely by your state; however, the U.S. Department of Labor also has a say in this due to Fair Labor Laws.
In summary, your state and the U.S. Department of Labor say that if you get to CONTROL someone (what they do/when they do it), they work for you on an ongoing basis, and you are reliant on them for the KEY ACTIVITY of your business, then you must classify and treat them as an employee.
Why do they care? The government takes great pains to ensure that workers are treated and paid fairly. An independent contractor is not held to the same standards as an employee and is not subject to minimum wage or break laws. Additionally, the organization does not pay payroll taxes on monies paid to the independent contractor.
You can and should research your state law on worker classification especially if you are considering paying a worker as an independent contractor. Many states may have different definitions/criteria on this in multiple departments including the Employment Department, the Department of the Treasury, and the Department of Labor. Below is a link and a graphic to the U.S. Department of Labor worker classification standards.
Other things to note: It is a red flag to the IRS for a worker to receive a 1099 every year from the same organization. It is also a huge red flag if the IRS sees a worker receive a W2 and a 1099 from the same organization in the same year. Reg flags trigger worker audits and worker audits can lead to fines. No fun! Consider carefully when classifying your workers!