If you pay subcontractors as 1099s who work schedules you set, use your tools, and work under your supervision — the IRS has a different name for that: employees. The average reclassification penalty for a 10-person crew is $40,000–$80,000 in back taxes and interest.
Subcontractors who work your schedule, use your equipment, and answer to your foreman are employees under IRS and DOL tests — regardless of how you pay them. The IRS is running AI scans on contractor-heavy payrolls right now.
Prevailing-wage differentials, per-diem allowances, and project bonuses must be blended into the "regular rate of pay" before overtime is calculated. Most payroll software gets this wrong by default.
Federal and state construction contracts require certified payroll reports under Davis-Bacon and related acts. A single filing error on a public project can trigger full-contract audit and debarment.
No. The IRS and DOL apply a behavioral and economic-reality test, not a contract test. A signed 1099 agreement is useful but not determinative. If the worker operates under your control (schedule, tools, supervision), the contract won't hold up in an audit.
Payroll software processes payroll — it doesn't audit how you've set it up. The software will calculate overtime on whatever regular rate you entered; if that rate is wrong, the software runs the wrong math perfectly. We review the setup, not just the output.
Typically yes, because at 8 employees the IRS misclassification exposure alone is often $30,000–$60,000 in back taxes — we've seen that many times. At $499 the math on the find-nothing-free guarantee is straightforward.