Contract Employees

December 16, 2011

Q: We are being challenged on contract employees who do our marketing, web development and social media. How is this wrong?

A: The Wall Street Journal recently printed an article on the same subject. They are suggesting that marketing, and especially social media focused workers, is a new category that the IRS is cracking down on. The rules that govern the W-2 employee vs. the independent contractor are really how many hours per week they work directly for you, how much direction you provide and if they have other clients. My guess is that most of our members would have at least one employee misclassified just because the rules aren’t that clear.

This is actually a good time of year to go through your employee classifications and status reports, look at exempt vs. non-exempt status, workers compensation SOC codes and then review part-time and contract employment practices. Make sure these independent contractors mentioned are always labeled as “freelance” or “marketing consultants”. If they work just for you and no one else, get them on the payroll.

The IRS is looking for companies who are keeping their employee headcount artificially low by using contract employees. They realize that the cost-savings that this provides results in a reduction in payroll taxes. On the other hand many of our members find more efficiency in using outsourced service like marketing as they can manage the work results on a per project basis. — CW

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