Risks of Hiring Independent Contractors

As we discussed in the last blog, an independent contractor is defined as a person or entity engaged in a work performance agreement with another entity as a non-employee. As an independent contractor, these workers are considered self-employed. This is an important distinction to make as the term “independent contractor” has become widely convoluted and misused in our pro-employee climate, and thus companies need to be careful about who they designate as an independent contractor. 

Some of the risks you take by hiring an “independent contractor” when they should be considered an employee include the fact that:

1. You’re not paying unemployment tax for them
2. You’re not paying payroll taxes for them
3. You’re not paying Workers Compensation for them (premium fraud)

If your employee designation is found to be incorrect, you can be fined and even have to pay back taxes with interest.

There are also additional liabilities with hiring a 1099. 

1. They could get hurt while working for you and sue you – If that person was an employee, you have workers compensation which now includes a broad range of coverage now that there are more at-home workers.
2. Intellectual property – Even if a contractor signs a non-disclosure agreement you are still at risk of them stealing your intellectual property.
3. Loyalty – Even if a contractor only works for you, they don’t have any benefits or incentives tying them to the job. Therefore, you may hire a contractor who completes the job, but they likely won’t focus on more than the bare minimum.

Ultimately, saving some money on benefits and taxes may sound like a great idea, but there are more risks and potential liabilities that should be considered before classifying someone as a 1099.

DII is your partner in the workplace. Our team of experts can work with you to understand how to classify your employees, and which can incur 1099 status. Please contact your DII representative for more information.  #IndependentContractors #1099