Do I W-2 or do I 1099 the worker? That is the question business owners and other organizations must face in 2021. Why are you, at Executive Advantage, bringing this issue up? Didn’t you comment on this back in 2015? The answer is ‘Yes,’ we did, but there, in a very quiet way, have been some additions to the rules and regulations that need to be addressed before going forward in 2021. In the past, the IRS 20 Factor Test was the primary determiner. Who controlled the work was the main issue in selecting W-2 or 1099. Now the Federal Department of Labor has added some new factors to the decision tree — a resurrection of their ruling from 2015 that was overturned — and we share them with you as you make your decisions about how to handle current and future independent contractors in your organization.
The following is provided by the DOL. The final rule includes the following clarifications:
- Reaffirms an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FSLA employee).
- Identifies and explains two “Core Factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself.
- The nature and degree of control over the work.
- The worker’s opportunity for profit or loss based on initiative and/or investment.
- Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. These factors are:
- The amount of skill required for the work.
- The degree of permanence of the working relationship between the worker and the potential employer.
- Whether the work is part of an integrated unit of production.
- The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
- Provides six fact-specific examples applying the factors.
Question – Is this now in effect? No. The new rule will take effect 60 days after publication on the Federal Register, on March 8, 2021.What should you do?
- Make a list of everyone you’re compensating for services performed (every person on your vendor list) including cleaning persons, maintenance, plumbing and IT Persons.
- Make a list of everyone you’re giving a 1099.
- Cross off the obvious – payroll, etc. – that you know have a number of clients.
- What’s left is a list of your potential IC/Employee issues.
May we suggest calling Doris at (573) 819-0706. It’s faster than doing it yourself.