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Writer's pictureKorey Bahme

W-2 vs. 1099 Employees in Arizona

Updated: Feb 9

It’s no secret that business owners want to lower their taxes and get the most from employees at a cost that their business can afford. However, have you heard about the Arizona Attorney General’s Office’s new Workers Protection Unit? 

 

On September 1, 2023, the Arizona Attorney General instituted the Workers Protection Unit. What does this mean for business owners? This means that the classification of employees as W-2 employees or 1099 Independent Contractors is a lot more important.  

 

One goal of this unit is to combat tax and payroll fraud. As a business owner you may be classifying workers as 1099 Independent Contractors because you were advised you could do so to lower your tax liability. You may think that this classification is not fraud because if it were then you would not have been advised that you can classify all workers as Independent Contractors; nonetheless, this is not the case.  

 

Classifying workers for your business is critical. Arizona has many factors to determine the classification of your employees. These factors range from the degree and control that the business has over how the worker performs the work and the hours in which they work, any “tools” or “equipment” the business may provide for the worker to carry out their duties, to the benefits that the business may offer the worker.  

  

These are not the only factors and if you intend to classify your worker as a W-2 employee or a 1099 Independent Contractor then classification along with the factors supporting such should be in writing. Misclassifications could result in the Arizona Attorney General’s Office suing your business to recover penalties for violations. Your business may also be responsible for paying back taxes for payroll and back pay for unpaid overtime and any other punishment provided by law. 

 

Although the Workers Protection Unit is still new, it does show that Arizona is taking the classification of workers seriously. The Arizona Attorney’s Office is encouraging workers to report possible violations for investigation by the office.  Due to this increased focus, you should seek help from a business law attorney who can assist you in complying with classification regulations and understanding your business' obligations.

 

If you are unsure how to classify a worker or just need assistance developing your Independent Contractor Agreement that supports your worker’s classification, Bahme Law is here for you! 

 

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