I read an article in Entrepreneur Magazine titled “Freelance Nation“. Under a subheading titled “The IRS is Watching”, the author discusses the proper tax handling of subcontractors versus employees.

She states that 6,000 business have already been targeted for audit for “worker misclassification”. Construction was near the top of the list of industries being targeted for audit. One of the criteria for “misclassification” is if workers are paid by the hour, not by the project. Another is whether or not a contract is in place for the relationship. (Have you seen our Subcontractor Manual?)

Audits can be triggered by workers’ compensation claims or by claims for unemployment. A disgruntled worker or competitor can also file a complaint and pocket a percent of the amount collected.

Gang, make sure you run your business like a business. Learn the rules as they apply to employees versus subcontractors. Few things can waste time and distract you from your business like an IRS audit. You don’t need it.


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