Payroll audits aimed at 1099 workers (via Wall Street Journal)

Small businesses need to know the rules on contract workers vs employees – ignoring the rules can be costly as this article from the Wall Street Journal points out:

Payroll Audits Put Small Employers on Edge

Tax Crackdown Comes as Use of Contract Workers Grows; Companies Find Rules Unclear

By ANGUS LOTEN And EMILY MALTBY

Internal Revenue Service auditors showed up with little warning at Brian Robinson’s staffing firm in Atlanta a year ago, seeking to verify that a dozen outside contractors he had hired to handle his information-technology services weren’t, in fact, full-time staffers.

The audit was part of a government crackdown on employers who misclassify workers as independent contractors to avoid paying payroll taxes, and other employment-related expenses.

TRC Staffing Services CEO Brian Robinson, right, says that the legal distinction between full-time staff and independent contractors can be very confusing for many employers.

Mr. Robinson says the auditors ultimately found that his 30-year-old family business, TRC Staffing Services Inc., with its 100 permanent employees and up to 20 temporary workers, was in the clear. But he says the audit was “nerve wracking” because tax law doesn’t make it easy to distinguish between full-time staff and independent contractors doing full-time work. He says the legal distinction can be confusing even for an employer with his decades of experience in the labor market.

The appeal of using outside workers is growing as many small businesses struggle to stay lean. Some employers also are turning to contractors to avoid hitting the 50-employee threshold that would require them to pay for employees’ health insurance, starting next year, under the federal health-care law, or pay a penalty.

Read the rest of the article at the Wall Street Journal website.