“Joe is a custodian who works for a county public school. Workers can be both, either concurrently or at separate times, in the same calendar year. There may be instances where a worker serves as an independent contractor and an employee for the same entity.

It’s up to you to consider all the factors, determine the extent of control over the worker, and thoroughly document your final decision. Others may indicate the worker is a 1099 contractor. Some of your answers to the above questions may indicate the worker is an employee. Unfortunately, no one factor can make that determination. It’s also important to remember that each state has rules and regulations around worker classifications. Type of relationship : Do you have employee policies or offer employee-type benefits like pension, insurance, and vacation pay? Is the work performed a key aspect of the business? Will the relationship continue once the work is done?Īs a business owner, it’s up to you to weigh the above factors when determining whether a worker is an employee or an independent contractor.Financial Does the company or payer control the business aspects, like how it pays the worker? Are the worker’s expenses reimbursed? Who provides the tools and supplies needed to get the job done?.Behavioral Does the company control or have the right to control what the worker does and how the worker does their job?.Three categories determine the degree of control you have over a worker. There is no magic formula to determine whether a worker is an independent contractor or an employee. Let’s take a closer look at each classification.

If you’re still murky on the details, you’re not alone. Employees work according to your schedule and policies.Įvery small business owner should understand the differences between these classifications and when to hire a W-2 versus 1099 worker. Independent contractors define when, how, and where they work.

Employee classifications determine how much control you have over a worker’s schedule, payment, and other aspects of their job.

You don’t usually have to withhold or pay taxes on the payments you make 1099 contractors. You’re required to withhold income taxes and pay taxes on the wages you pay to W-2 employees.

Employee classifications affect how both you and your workers are taxed.

Misclassifying an employee as an independent contractor can result in financial penalties from the IRS or an employee misclassification lawsuit against your business.

It’s important to know the difference between 1099 independent contractors and W-2 employees for a few reasons.

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