Is Your 'Contractor' Actually an Employee?
The IRS, DOL, and state agencies are cracking down on worker misclassification. We bulletproof your hiring to prevent six-figure fines.
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Payroll & Contractor FAQ
Your questions about worker classification and compliance, answered.
What's the difference between 1099 and W-2?
A W-2 employee is on your payroll; you pay half their FICA taxes, withhold income tax, and provide workers comp. A 1099 contractor is a separate business; you pay them a gross amount, and they handle their own taxes. The key legal distinction is 'Control'.
Can I pay myself as a contractor from my S-Corp?
NO. This is illegal. If you are an officer of an S-Corp, you MUST be on W-2 payroll for your 'reasonable compensation'. Paying yourself via 1099 to avoid payroll taxes is tax evasion.
Does ADP handle misclassification?
No. Payroll software processes what you tell it to. If you tell it to pay an employee as a contractor, it will, until you get audited. We provide the advisory layer to ensure you are entering the correct data.
Do I need to file 1099s for everyone?
You must file a 1099-NEC for any unincorporated service provider (contractor, attorney, landlord) you paid $2,000 or more/year via check, cash, or wire. Payments made via credit card or PayPal are generally excluded.
What triggers an IRS worker misclassification audit?
The most common trigger is when a contractor files for unemployment benefits, they must disclose who paid them and how. State labor agencies often share that information with the IRS. A single former contractor claim can open a multi-year audit of all your 1099 workers.
How do I defend a contractor relationship if the IRS audits?
You need a well-drafted independent contractor agreement, evidence that they work for multiple clients, documentation that they control their own methods and schedule, and records showing they supply their own tools. We help you build and maintain this documentation before an audit happens.
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