Tag Archives: 1099 and w2 from same employer

Is It O.K. To Pay Employees “On The Side” As Contractors?

Hiring employees to do “side jobs” for your company has been a growing trend versus trying to search for someone else to perform the job from outside the company.  Some types of jobs performed by independent contractors could be cleaning, computer work, or repair & maintenance.

Example:  A receptionist who is an employee who makes extra money by cleaning offices during non-business hours as an independent contractor.

If the job the independent contractor is hired for ends up paying more than $599 in a calendar year, a 1099 Misc form will have to be issued.  The IRS pays close attention to individuals who receive a both a W-2 and 1099 form from the same company in the same year.  A possible employment tax audit for the entire business could be triggered from doing this.

If the job is performed outside of the normal employee’s work hours and the job has no relation to the regular work of that employee then it could be an exception, but be prepared to have to prove that to the IRS.  If the employee has a legitimate independent business with separate Federal ID number and works for other companies who pay the employee for that job would be the safer option.

Even though it may be easier to hire a current employee, it could open your company up to an audit risk and isn’t usually advised.   You can have the independent contractor fill out the IRS form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) and let the IRS determine the status of the work performed.

By: Sandra Stone, Accountant