As you may have read in the news recently, job growth is faring poorly in America. Companies don’t want to commit to hiring permanent employees because of all of the liabilities and regulations that come with hiring them. Companies can hire 1099 or temporary workers instead, but they may actually want a permanent employee or don’t want to risk employee reclassification by the IRS.
Employee reclassification occurs when the IRS audits your business and finds that you incorrectly classified your employees as independent consultants. The reason why companies would classify their employees as consultants would be to avoid paying the employer side of taxes and other W-2 rules and regulations. If the IRS becomes suspicious of a company incorrectly classifying it’s workers, they will audit the company and apply the 20 question employment test to determine if the consultants are treated as consultants or as employees. If they were in fact treated as employees then the company will face heavy fines and will become responsible for paying all of the taxes owed from previous years. Truthfully, many companies don’t know about this difference and don’t incorrectly classify their workers maliciously. However this risk dissuades many companies from hiring any employee on a 1099 basis anyways, regardless if they are correctly classified or not. However hiring W-2 employees isn’t simple either. Just ask any HR representative how complicated all of the regulations are when hiring or firing an employee. Due to these problems many companies are holding off on hiring any employees regardless of their classification and are choosing to see whether or not the economy improves before assuming any responsibility or liability.
However there is a way for companies to hire staff as either temporary or long term employees without assuming the aforementioned risks and liabilities. There are agencies which will act as the employer of record which will classify the employee as their own W-2 employee. This enables any company to hire an employee as a consultant for as long as they need them. All of the correct tax withholding requirements and other regulations will be handled by the agency so the company doesn’t have to worry about an audit or reclassification fines. Furthermore, the employee will be protected by the agency’s umbrella of coverage which could be quite attractive depending on the agency.
By hiring employees through an agency companies can mitigate their risk and liabilities effectively. If more companies knew about this option then we may finally see the job market improve in America. If you are interested in learning more about hiring workers through an agency or want to put your 1099 or LLC through an agency contact iamindependent.com, inc. to learn more.