Five Ways IT Contractors Can Overcome the 1099 Misclassification Stigma
Independent contractors must work long hours, hone a range of skills, and successfully meet deadlines as a one-person team. They run their own business, pay a higher percentage of taxes and purchase their own insurance. And how are they rewarded for this dedication to their craft? With a stigma that can, at times, feel impossible to overcome.
It’s an unfortunate truth that, for many employers, your 1099-status can be a red flag. The IRS is always on the look out for revenue, and one way they recoup what they view as uncollected taxes is to reclassify independent contractors as employees. If this happens, companies may endure fines, penalties, and back taxes – so employers are always wary of having 1099 independent contractors reclassified.
Employee vs. Independent Contractor
The IRS defines an employee as anyone who performs services for an employer if the employer can control what will be done and how it will be done. It’s in the best interest of the IRS to have workers classified as employees because its much easier to collect payroll taxes than the taxes on independent contractors.
There is a 20 Factor Test the IRS uses and employers can reference to gauge if they are in danger of having 1099 independent contractors reclassified. As an independent contractor, there are a few things you can do to demonstrate that you understand these factors and to provide a company considering your services some comfort that you are unlikely to be reclassified.
Here are steps you can take to help overcome a perceived stigma of your 1099 status.
1. Establish Your Business as a Legal Entity
It may be a good idea to form your own LLC or S-Corp depending on your liability needs and write-offs. By having an LLC, you show a prospective client that you have the legal mechanism in place to conduct business and that there is little doubt you are positioned as an independent contractor.
2. Give Yourself Some Credit
Even if you expect to line up steady work with one or just a few clients, create an online presence for your business as if you were marketing it to get found. That may be as simple as a website and a LinkedIn profile. Make your training, certifications and accomplishments readily available on both.
3. Get References from Satisfied Clients
References go a long way in proving your skills and reliability to potential employers and working for a number of entities often indicates independent status. If you’ve been contracting, references are absolutely essential. Did you design a great website for a client? Follow up to see how everything’s working out. Has your consulting advice saved a local business money? Those numbers matter!
It’s okay to ask current and former clients for testimonials or references. People love making recommendations for products and services they’ve had a good experience with. If someone’s found your service exceptional, prospective clients want to know.
4. Be Confident
Imagine yourself on a first date. If your dinner companion made it clear she just really wanted a boyfriend – any boyfriend – would you go out with her again? Didn’t think so. If it’s clear to your prospective client that you have options, they’ll see you as an established contractor.
Recruiters want to know why you want their job, and what you’ll bring to the table in the position. Demonstrate passion for your work. Show a potential employer why they should want you.
5. Get Someone on Your Side
It’s not easy to advocate for yourself – or to make the case that you meet all the criteria for being an independent contractor. By working with a recruiter, you’ll have an advocate who is experienced talking with prospective clients about misclassification of employees.
If you need help finding an IT job, don’t hesitate to contact the IT staffing experts at DPC today!