airCFO Tax 101: 1099s and Employee Classification – Part 2
In part 1 of this blog, we stressed the importance of correctly classifying employees, and highlighted some common mistakes startups make in this process. Aside from mistakes, we were also curious about how this process has changed, and where it’s going in the future. In this post, we cover how managing 1099s and employee classification have evolved over time and outline some exciting trends in this space.
Over time, more and more services – from finding talent to payment and compliance – are automated with technology for employers. This allows employers to select from a broader candidate base in order to find the best fit for their company or hire in lower cost of living areas. Platforms that enable so-called gig work/peer-to-peer connection blur the line between employee vs contractor. Even filing tax forms has been outsourced. Payroll companies take care of payroll filings while commerce platforms can even file 1099-Ks on a company’s behalf, reducing administrative burden on founders to keep up with changing tax laws and processing tax forms.
We will likely continue to move toward more remote and flexible workplaces, and the incidence of gig work will increase as innovators develop more niche marketplaces serving demand. We will also likely see more legislation come out, at least at the state level, to address this employee vs contractor issue, so business owners should keep any advisor up to date on how they are classifying their workers.
An interesting trend is that the evolution of technology has allowed people to access almost everything they need to complete work from their home or coworking space. Platforms such as Quick Books Online allows a client to add people to have access to do their bookkeeping from anywhere. This allows clients to be able to choose who they want to hire to do work for them rather than just be limited by the business in their local area. Especially with the switch to remote work catalyzed by the pandemic, companies are more remote than ever and more dispersed than ever. Many start-ups are set up explicitly to run as a remote company, with measures in place to mitigate problems created by remote work.
This can also help the clients outsource some of their work for things such as accounting, finance, and tax services that airCFO can offer clients located all over the United States. Other things such as payroll and marketing can also be outsourced to places all over the world. This trend gives clients more choices and options to help them find the right fit for their business to increase their chances of success and growth. This can ease the transitions from one life cycle stage to the next as companies like airCFO can help businesses bridge the gap between being small enough for the founders to do their own minimal accounting work to being big enough to justify building an in-house accounting department.
When attempting to navigate the complicated road of accounting, payroll and taxes its always best to be proactive. There are many services out there (like airCFO) that can assist a startup in these departments but a statement to remember is, don’t cut corners and costs in the beginning because they will cause you more expenses and problems in the future. We always recommend keeping an advisor roped in so they can appropriately advise you on any potential federal or state issues. If you have third parties filing payroll forms or 1099s on your behalf, make sure you stay connected to what they are filing, and all necessary information because at the end of the day the filings are the responsibility of your company.