Worker classification (W-2 vs 1099)

Definition

Employee or contractor, decided by who controls the work, not the paperwork.

Why It Matters

Treating employees as contractors to avoid payroll taxes and workers' compensation is a liability that travels with the business, and back taxes with penalties can be assessed for years already gone. Any labor-heavy trade belongs in diligence for exactly this reason, painting, fencing, cleaning, moving, and home care most of all. Reclassifying after you buy also raises the real cost of the labor you priced, so the finding changes the model as well as the risk.

In numbers: A crew of 15 paid as 1099 subcontractors while working set hours under supervision can trigger a reassessment of back payroll taxes and penalties, often 20% to 40% of the misclassified wages, and the buyer usually inherits the bill.