Selling Your Business with 1099 Employees

Recently had an opportunity to help a manufacture with bout 15-employees try to sell his business.  All were 1099, even the office staff.  This poses a big tax liability issue.  Everything is fine until you get caught or there is an on the job accident.

 From a buyer’s perspective, most want nothing to do with it.  The 1099-employees will have to be converted to W-2 which could be a problem for the employees.  So now in addition to learning a new business, the buyer has to deal with find new staff that waked off the job.

For the transaction to move forward, an adjustment will need to be made to the expenses to add in for the employee taxes and workman’s compensation.  The biggest issue however is the uncertainty for the buyer, of will the employees walk when told they are being converted to W-2.  The smart thing to do is convert over to W-2 at a year’s end, and just explain, it’s the law.