Every business owner should understand the risks between employee classifications and when to hire a W-2 versus a 1099 worker.
Now, let me start off by saying this is an issue that has afflicted our industry for some time, and now more than ever, it needs to be reiterated. We have heard it before, hiring 1099 event staff is cheaper. But have you heard the saying, “you get what you pay for”? The risk associated with hiring a 1099 independent contractor is enormous. If the IRS believes a company has intentionally misclassified workers, the company may face criminal and civil penalties, as well as other potential insurance risks. Not only are you putting your agency at risk, but your client may be at risk as well. The stress and costs associated with fighting the co-employment & unemployment claims are expensive and time-consuming. It’s obvious that saving a little cash on the front end can not only cost you more money in the long run but also waste valuable hours of your time.
So, the question remains; should Brand Ambassadors be classified as w2 employees or 1099 contractors? The simple answer comes down to how much control you have over a worker’s schedule, payment, and other aspects of their job and I will get to that shortly. But the short answer is yes, and if intentionally misclassified it can hurt both parties:
– Independent Contractors may be at higher risk of tax audits and penalties. In addition, they likely are ineligible for new federally supported paid sick leave during the Coronavirus crisis.
– As the client, you have less control over their work. and you don’t have the protection of agency provided workers’ compensation. So, if a 1099 worker gets injured on the job, they could hold your business responsible. And with Coronavirus legal claims up, this is a serious issue.
– There are additional legal considerations too. While you might be able to fire an employee at-will, dismissing a contractor for any reason could be a breach of contract.
– Organizations hiring 1099 independent contractors illegally can also be held responsible for paying back-taxes and interest on employees’ wages as well as FICA and unemployment taxes that weren’t withheld or paid originally.
So, WHY SHOULD A BRAND AMBASSADOR BE TREATED AS A W-2 EMPLOYEE, NOT A 1099 INDEPENDENT CONTRACTOR?
According to the IRS, here’s why:
- They are expected to communicate with the agency and client as to when they will be on the premises and usually work set hours.
- They perform services that can be controlled by an employer/client and are required to be carried out in a certain order, such as handing out premium items, providing talking points, etc
- They are required to submit reports
- They work onsite at a venue or event location
- They are paid an hourly, weekly or monthly rate rather than on a project basis.
To be classified as a true 1099 independent contractor, a worker must have complete autonomy. A few items the IRS uses to define autonomy include:
- The worker is not required to set a schedule. (this would certainly not work for most events where specific schedules are given to the agency)
- The worker performs tasks in any order they wish. (reviewing specific training manuals and guidelines)
- The worker is not required to leave written or oral reports.
- Work is not performed on the company premises for example at a client’s retail location
- A 1099 worker is paid on a project basis and at the project’s completion, not on an hourly or weekly basis
We know this is a lot to digest and you may have been misled in the past, which is why I wanted to get this information out there. It’s obvious that saving a little cash on the front end can not only cost you more money in the long run but is far too risky in today’s environment.
Have questions? We are here to help! Please reach out and we can point you in the right direction.