“I’ll just pay them as a 1099.”
I hear variations of this from business owners all the time.
Sometimes the reasoning is that the worker only works part-time. Sometimes the worker asked to be paid as a contractor. And sometimes the business owner simply doesn’t want the additional cost and responsibility that comes with payroll.
Here’s the problem:
You don’t get to decide that someone is an independent contractor simply by issuing them a Form 1099.
And right now, I have three Florida Department of Revenue audits in progress involving business clients. What the Florida Department of Revenue is requesting should get the attention of every Florida business owner who uses subcontractors or independent contractors.
A 1099 Does Not Make Someone an Independent Contractor
Let’s use a common example.
You hire someone to work the front desk of your business.
They work at your location. You determine when they work. You tell them what needs to be done. They answer your phones, greet your customers, schedule appointments, and perform ongoing duties as part of your regular business operations.
But instead of putting that person on payroll, you pay them as a “1099 contractor.”
Calling them a contractor doesn’t necessarily make them one.
Neither does having them sign an independent contractor agreement.
And neither does issuing them a Form 1099 at the end of the year.
Worker classification is based on the actual facts and circumstances of the working relationship.
This matters because treating someone as an independent contractor rather than an employee can shift payroll tax and reporting responsibilities away from the business. If the classification isn’t supportable, an audit can become a very expensive way to discover that.
What Is Florida DOR Asking for During an Audit?
This is not hypothetical. These are examples of documents being requested in audits I am currently handling.
The requests include:
• Complete federal income tax returns, including attachments, worksheets, and statements
• Detailed general ledgers showing dates, payees, descriptions, amounts, and check/reference numbers
• Chart of accounts
• Income statements and balance sheets
• Forms 940 and quarterly Forms 941
• Florida Forms RT-6
• Individual employee earnings records
• Quarterly payroll summaries
• Payroll ledgers and pay stubs
• Forms W-2 and W-3
• Forms 1096 and 1099
• Independent Contractor Analysis, Form RTS-6061
And here’s where business owners using 1099 workers really need to pay attention.
For workers treated as independent contractors, the auditor may also request documentation supporting that the worker is actually operating an independent business.
That may include items such as:
• Business registration, including Sunbiz records
• Invoices from the contractor
• Independent contractor agreements
• Business cards
• A business website
• Public advertisements
• Other evidence demonstrating that the individual operates an independent business
In other words, the question isn’t simply:
“Did you issue a 1099?”
The question can become:
“Show me why this person was an independent contractor instead of your employee.”
That’s a very different conversation.
And What If You Didn’t Issue the 1099?
There’s another issue I want Florida business owners to understand.
If your profit and loss statement includes significant subcontractor expenses, but you didn’t issue required Forms 1099, don’t assume no one will ever ask about it.
During an audit, the auditor can see the expense on your tax return and in your general ledger.
You may then need to explain who received those payments, what services they performed, how much they were paid, whether information returns were required, and why the individuals were treated as contractors.
This is why good tax compliance starts long before the tax return is prepared.
“But They Asked Me to Pay Them on a 1099.”
That doesn’t settle the issue either.
Worker classification isn’t simply an agreement between the business and the worker.
A worker saying, “Just 1099 me,” doesn’t automatically relieve the business of its employment tax and reporting responsibilities.
The nature of the relationship matters.
That is especially important when someone performs ongoing work that looks very similar to a traditional employee position.
Protect Your Business Before an Audit
If your business uses independent contractors, now is the time to review your procedures.
Obtain a properly completed Form W-9 before you begin paying a contractor. Maintain documentation supporting the relationship. Keep good records of every payment. Issue required Forms 1099 timely.
And don’t wait until January to decide whether someone you’ve been paying all year should have been an employee.
Most importantly, if you currently have someone being paid as a 1099 contractor who functions more like an employee, let’s address it before an auditor does.
Because if you’re thinking:
“My business isn’t going to get audited.”
I understand. But as I write this, I’m currently handling three Florida Department of Revenue audits.
This isn’t theoretical.
This is what I’m seeing in practice right now.
Need to Review Your Independent Contractors?
If you’re a Florida business owner and aren’t sure whether your workers are being properly classified or whether your 1099 procedures are where they should be, schedule a consultation before it becomes an audit issue.
