BLOG: 1099 vs. W-2 Employee

1099 vs. W-2 Employee

Employee or Independent Contractor

When making staffing decisions, it is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.

According to the IRS, generally, you must withhold income taxes, withhold and pay your matching portion of Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Additionally, you will need to secure Worker’s Compensation insurance. You do not generally have to withhold or pay any taxes on payments to independent contractors.

Common Law Rules

There are three categories to consider when determining the degree of control and independence an individual has:

  1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  2. Financial: Are the business aspects of the worker’s job controlled by the company? (These include how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  3. Type of Relationship: Are there written contracts or employee-type benefits, i.e., pension plan, insurance, vacation pay, etc.? Will the relationship continue and is the work performed a key aspect of the business?

If the person is an independent contractor, they likely:

  • Set their own schedule.
  • Use their own personal method for finishing assignments.
  • Accept tasks on a case-by-case basis — and can turn down tasks.
  • Supply their own materials.

If the person is an employee, they likely:

  • Have assigned hours or a set schedule.
  • Get trained by your practice in a certain method.
  • Complete any and all work assigned by you.
  • Are provided the tools and materials necessary to finish their work.

You must weigh all these factors when determining whether a worker is an employee or an independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

When it comes to who should be classified as an employee and who should be considered an independent contractor, the key word is “control.” In other words, “it’s all about who controls the work being done.

Here is a checklist you may find helpful:

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Renee Matlock, the owner of The Private Practice Coach, shares with clients her wealth of experience, gained over 30 years of building a profitable, multi-disciplinary private practice.
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