Employee Classification

December 03, 2024

by an intermediary from Northeastern University in Minneapolis, MN, USA

Is there anyone with expertise / experience with employee classification (i.e., W-2 vs. 1099)? I am looking at a company and not convinced they are classifying their 1099 contractors correctly and would like to determine whether there are actions I could take as the owner so that they remain 1099 or confirm that they should be converted to W-2 employees. Please DM me if you have any input and I can fill you in on the details. Thanks!

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Reply by a professional
from University of Notre Dame in New York, NY, USA

Hi Steven - There's a multi-factor legal test that can help you determine if employees are correctly classified (no sole factor is dispositive). The test includes things like: (i) employee's opportunity for profit or loss w/r/t to the business; (ii) investments made by the worker and the employer in the worker/business; (iii) permanence of the work relationship; (iv) nature and degree of control of the employee by the employer; (v) whether the work performed is integral to the employer’s business; and (vi) skills and initiative of employee. If you have your doubts, you should negotiate with the Seller to give you a "special indemnification" for post-closing tax liabilities stemming from misclassification - you'd likely owe payroll and other taxes for such employees for all open years.

Happy to chat through more - shoot me an email redacted or DM me.

Reply by a searcher
in San Francisco, CA, USA

Following.

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