Experience Files

A recurring issue I encounter with new clients is the misunderstanding and misuse of 1099 independent contractors. I can't emphasize this enough: unless the individual you're working with genuinely operates their own independent business with their own general liability insurance, chances are, they should be classified as a W2 employee.

The IRS has very stringent guidelines regarding employment status. Simplifying these rules, here's how to distinguish between the two:

When a Worker is a W2 Employee:

A worker is generally considered a W2 employee if the following conditions are true:

• Their work hours are set by your company, usually consisting of a fixed schedule.

• The work process is defined by your company, and you provide training to them.

• Their workload is assigned by a supervisor, and they are required to meet set performance criteria.

• The equipment, tools, and supplies needed to perform tasks are provided by your company.

• They primarily have a single employer (your company).

When a Worker is an Independent Contractor (1099-MISC):

Conversely, a worker typically qualifies as an independent contractor under 1099-MISC definitions if these conditions describe your working relationship:

• The work schedule is determined by the worker themselves.

• They accept assignments on a case-by-case basis and have the ability to reject or opt out of assignments.

• They complete assignments using their own methods and work processes.

• They provide their own tools, equipment, and supplies, although your company might offer some training.

• They provide their services to other clients in addition to yours.

Misclassifying employees can lead to significant legal and financial penalties, including back taxes, fines, and lawsuits. Don't put your business at risk. Take the time to understand these distinctions and ensure your workers are correctly classified.