W2 Employee or 1099 Independent Contractor? A Quick Primer

1099 formsFrom the Work Market Blog — “Ultimately, determining how to classify and pay a worker depends on the business relationship that exists between you and the individual. Information that provides evidence on the degree of control and independence falls into three categories (via IRS.gov):

  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 payer? (these include things like how 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?

These three factors must be considered when determining whether a worker is an employee or an independent contractor. It’s important to note that there’s no silver bullet when making such a determination. Some factors may outweigh others and every situation is different.

The IRS is more likely to classify a worker as an independent contractor if they:

  • earn a profit or suffer a loss from the activity
  • are supplied the tools and equipment needed to perform the work
  • are paid by the job
  • work for more than one company at a time
  • pay their own expenses
  • set their own working hours.

Alternatively, the IRS is more likely to classify as an employee a worker who:

  • can be terminated at any time
  • is compensated by the hour
  • receives instructions from the company
  • receives training from the company
  • works full time for the company
  • receives unemployment benefits…”

Read the full story at W2 Employee or 1099 Independent Contractor? A Quick Primer

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