Perhaps the single-most greatest indicator of a business’s ability to pass an independent contractor audit by Department of Labor & Industries (L&I), Employment Security Department (ESD), or the IRS, is the business’s record-keeping practices.
Businesses with poor or inadequate record-keeping will invariably have serious compliance deficiencies under applicable law, while businesses with strong record-keeping systems and processes will gain auditors’ trust and will often sail through audits. At a minimum, such businesses are likely to obtain the best possible audit result.
So how are your record-keeping practices? Do you have the following records, among other things, on file?
- Independent Contractor Agreement
- Completed W-9
- Contractor’s UBI number
- Copies of contractor’s letterhead, invoice, business card, website and other marketing materials
- Contractor’s licenses/registrations (if applicable)
- Work Orders & Statements of Work
- Records showing contractor’s L&I account is in good standing (this does not apply just to construction subcontractors)
- Time-keeping records (in some instances)
- Proof that contractor has other other clients
- Federal tax return or other proof that contractor pays federal taxes (invasive of contractor’s privacy, yes, but recommended by L&I)
- Photo or other proof that contractor operates business from a qualified home office (invasive of contractor’s privacy,yes, but recommended by L&I)
If your business records are deficient with respect to the above, take time to promptly address these and other important contractor compliance issues.
For more information on how to comply with independent contractor obligations, consult with an experienced independent contractor law attorney, and check out 1099 Review™, Washington’s State’s first online independent contractor risk assessment tool and resource center
