W2 or 1099?

While there are some dishonest employers who intentionally misclassify workers as independent contractors and pay them via 1099's, many employers do so unknowingly of the rules or because their accountant told them they could save money by doing so. 

Yes, your TAX CPA's are very knowledgeable about money saving tax strategies. and classifying certain workers as 1099 contractors is appropriate if they quality. However, misclassifying an employee to pay them as a 1099 "laborer" can actually cost you thousands of dollars in penalties, fines and lawsuits.

If you find yourself in the unfortunate position of having misclassified employees as contracted labor, we strongly encourage you to contact a labor law attorney, immediately. 

According to the US DOL Wage an Hour Division, they recovered more than $350,000 in back wages for 50 workers misclassified as independent contractors by a Tennessee home health care service provider. Unfortunately, this was intentional on the part of the employer to try to avoid paying overtime. (see True Cost of Misclassification article below)

Below are several links to help you determine how to classify your workers correctly, and the consequences of misclassification. We also encourage you to do your due diligence to research this subject for the most up-to-date information.

https://www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship

https://www.irs.gov/newsroom/irs-reminds-business-owners-to-correctly-identify-workers-as-employees-or-independent-contractors

https://blog.dol.gov/2021/05/06/the-true-cost-of-misclassification

https://www.dol.gov/agencies/whd/flsa/misclassification/myths/detail

https://www.adp.com/spark/articles/2023/05/9-consequences-of-misclassifying-your-1099-contractors.aspx

Sincerely,

Darla

Ally Business Solutions, LLC
Small Business Series, Classification Matters