Good day,

As a small business owner I was forced to make expense cuts to keep my doors open. The biggest impact was compensation. It was either lay off employees or make severe pay cuts.

I changed my employees pay from salaries to hourly pay. My plan is to do this until sales pick up and I can afford to reinstate their previous salaries.

My plan is to 1099 each employee. My question is are there any issues from a tax standpoint or penalities for doing this?

Craig

You are allowed to change your employees from Salaried to Hourly as the exempt salaried designation is to make the exempt from overtime.

You are not allowed to make them 1099 employees. If they are employees they must have taxes withheld and paid in to the proper authorities and receive a W-2 at the end of the year. It is not legal to send them a 1099 and not withhold taxes.

You are allowed to cut salaries, you are allowed to cut hours, but you must obey the taxing rules and they must be issued a W-2.

You are only required by law to pay minimum wages.

Shirley