1099 v. W2 Employees: What Every Employer Needs to Know
Often referred to as an independent contractor, or consultant, a 1099 employee is self-employed. As such, when an employer enters into a contract with a 1099 employee, this individual remains responsible for their own hours, tools, taxes, and benefits. Unlike a standard full- or part-time employee (W2 employee), 1099 employees are required to follow different laws and regulations and are not tied to one single organization.
This August, ridesharing providers Uber and Lyft, were ordered by a California court to classify their drivers as employees. Both have made clear their plans to appeal the decision. You see, drivers for these two companies are currently classified as 1099 employees, an intentional leadership decision intended to provide flexibility of work. As 1099 employees, Uber and Lyft drivers lack benefits and workers’ compensation, and as a result, have been subjected to various lawsuits regarding lost wages.
This recent decision, along with a similar NLRB ruling regarding professional dancers, indicates that employers must review what differentiates a 1099 employee vs. a W2 employee to ensure you are not only in compliance but also structuring your business for the greatest chance of success.
Independent Contractor (1099) vs Employee (W-2)
The IRS uses three categories to evaluate 1099 employee vs W2 employee relationships:
- Behavioral: This category analyzes who has control (i.e., what and how the 1099 employee does his or her job).
- Financial: This category explores how the 1099 employee is paid, expense reimbursement, and buyer of supplies.
- Professional Relationship: This category examines benefits, relationship longevity (temporary vs permanent or long-term), and impact the 1099 employee’s work has on integral business operations.
1099 Employee Checklist (FAQ Style)
Question: What form(s) do you give a 1099 employee?
Answer: Our partner, Vensure Employer Services, has created a quick [chart/infographic] for the forms employers need for a 1099 employee. These forms include a 1099-MISC form, W-9, and a written contract signed by both parties.
Question: What is a 1099 employee rules?
Answer: 1099 employee rules depend on various factors. The main rules may include, but are not limited to (1) state laws, (2) employer and industry, (3) written contractual obligations, and/or (4) … Carefully review these four rules or seek legal advice on employment laws related to 1099 employees.
Question: What is a 1099 employee?
Answer: A 1099 employee is also known as an “independent contractor.” The 1099 employee is essentially self-employed through individual contracts with an employer(s). This allows them to set their own rates and hours, as well as puts taxes, benefits, and tools responsibilities on the 1099 employee rather than the employer.
Question: Do 1099 employees need workers comp?
Answer: Like most laws, workers’ compensation laws vary from state to state. Whether a 1099 employee needs workers’ compensation is likely going to be dictated by individual state law. Check with your state’s workers’ compensation laws to see what, if any, coverage is needed for 1099 employees. You may also consult a workers’ comp attorney or a PEO like QBS to understand workers’ comp needs for 1099 employees.
Question: How to fill out a 1099 as an employee?
Answer: Like most IRS forms, the 1099 MISC form comes with instructions available both on the form and as a separate document, found on the IRS website.
Question: What are the best payroll prepaid cards for 1099 employees?
Answer: The best of anything is subjective and typically dependent on business needs. There are plenty of options out there and your best option is simply to do your research. Reach out to vendors that align with your business needs and ask questions. If available, ask for a demo of their platform to evaluate user-friendliness, accessibility, and other features you’re interested in.
Question: Can you collect unemployment if you are a 1099 employee?
Answer: Most state programs do not offer unemployment benefits to 1099 employees. However, 1099 employees may be eligible for Pandemic Unemployment Assistance (PUA), which provides unemployment assistance for 1099 employees and part-time workers.
Question: Where do I get 1099 forms for my employees?
Answer: 1099-MISC and W-9 forms, and other pertinent forms, can be found on the IRS website.
For more information or if you have additional questions regarding 1099 employees or W-2 employees, please contact QBS. Our experienced HR specialists can provide you forms, resources, tools, and industry best practices for your specific needs.
Source: Vensure Employer Services