Rules about who can be paid salary and who must get overtime have changed in the past few years. There are requirements and changes from the old rules that you probably need to incorporate into your policy manual. For a more complete description, go to the US Department of Labor website at www.dol.gov or contact your attorney.

1099 Forms must be filed whenever $600 or more is paid to an unincorporated independent contractor (including LLCs). If you aren't sure if the "contractor" is incorporated, request their Federal ID# and send them a 1099. In addition, 1099s are required for amounts paid to attorneys in excess of $600, even if they are incorporated. Please be sure you are receiving a completed and signed form W-9 prior to making payments and that you prepare and deliver 1099s by January 31. The Form 1099 reporting of payments to independent contractors is a top audit target. Failing to file properly prepared 1099s can result in penalties. Further, it may trigger an IRS employment tax audit of your Company's relationship with all of its contractors. Therefore, it makes more sense to deflect this risk by properly filing the 1099s.

You must have a current W-9 on file for each contractor. The IRS requires a mandatory 28% withholding on compensation paid to contractors that have not completed a form W-9. They will hold the employer responsible for the withholding plus interest and penalties if they are not in compliance with these rules. If you have any questions about this requirement, please contact our office.

The IRS has a program that will enable employers to resolve any Contractor vs. Employee classification issues at a low cost. Employers must apply to and be accepted by the IRS to participate in this program. To be eligible for the program, employers must: 1) have consistently treated the workers as contractors in the past; 2) filed all required Forms 1099 for the worker for the previous three years; 3) not be currently under audit by the IRS; and 4) not be currently under audit by the DOL or a state agency concerning the classification of these workers. Once accepted into the program, employers will pay a percentage (effectively a little over one percent) of the amounts incorrectly treated as contractor payments rather than W-2 wages over the past year.

The IRS will not assess any interest and penalties and the employer will not be audited on payroll taxes related to these workers for prior years. This program also allows for a six year statute of limitations instead of the three years that normally applies to payroll taxes. If you have any questions about this program or the classification of your workers, please call our office.