I have heard more and more about States coming down on businesses that misclassify employees in order to avoid paying payroll taxes (and workers compensation insurance).
So far, Florida and New York are leading the battle.
Be sure that if you are using sub-contractors/1099’ed workers, that you are playing by the rules and conform to the 20 questions that the DOL puts out there.
Be careful when you are talking about employees versus sub-contractors (aka 1099’s). Although a lot of business owners like the flexibility of having contracted out some core business functions to sub-contractors, if your State’s department of labor finds out that these sub-contractors are really employees, then you will have lots of legal fees and fines to sort through.
So, can an HR outsourcing provider handle a W-2 (employee) as well as a 1099 (sub-contractor)? Depending on the provider, sure. All you have to do is ask your current provider, or if interviewing a payroll company or other hr outsourcing provider, such as an ASO (administrative service organization) or PEO (professional employer organization).
The payroll provider or ASO should be a no-brainer. The PEO is a little tricky. By definition, if you contract with a PEO, you do not have employees, thus the PEO would need to take over payroll and workers compensation insurance for all persons that are defined as employees. They do not want the risk of having sub-contractors that are not covered by workers compensation insurance, attempting to file a claim. Some PEO’s will reject potential clients that use 1099’s as they do not feel the risk is worth the reward.