Just got audited for worker misclassification - warning to others

Posting this as a warning to others. My startup just got hit with an IRS audit for worker misclassification. We had 6 "contractors" who the IRS says should have been W-2 employees. Now we're looking at back taxes, penalties, and interest going back 3 years.

The total damage is looking like $180K+. We're a small company - this could sink us.

What triggers these audits? How do other companies structure this correctly? I thought as long as we used 1099s and they signed contractor agreements, we were fine.

Using a staffing agency does help because they're the employer of record. The agency handles W-2s as far as I know, payroll taxes, workers comp, etc.

BUT there are still risks:

• Joint employer liability if you exercise too much control
• If the agency goes bankrupt or doesn't pay taxes, you could be on the hook
• Some agencies misclassify their OWN workers and you could get caught up in their audit

Due diligence on the agency matters. Make sure they're legit, established, and properly insured.