Employee vs. 1099: Understanding the Differences

  1. Home
  2. Business & Contracts
  3. Employee vs. 1099: Understanding the Differences

There are several key differences between W-2 employees and 1099 independent contractors. There are several paperwork differences employers need to know, but many legal differences as well. Both the worker and the company that hires them should understand these differences and which is the right option for you.

At Kondori & Moorad, LLP, our skilled business and contract attorneys are here to help you understand the differences between employees and 1099 independent contractors. We can assist your business in picking the right option, completing the proper paperwork, and how to handle these different types of workers.

What Is a W-2 Employee?

Many businesses refer to all their workers as employees, and most of the time they are correct. However, many businesses forget that there are differences between W-2 employees and independent contractors.

The IRS Form W-2 is a Wage and Tax Statement for your employee. It records the employee’s compensation, taxes withheld, and benefits. Your company will have an employee complete a W-2 if they were classified as a part-time or full-time employee for your business at any point in a particular tax year.

Examples of W-2 employees include, but are not limited to:

  • Retail associates working in your physical location
  • Full-time workers under your direct control and authority
  • Managers and supervisors who work for your company
  • Workers over whom you control their work hours, location of work, and specific job duties

More may go into what defines a W-2 employee as well. An experienced business attorney can help you manage your W-2 employees correctly.

What Is a 1099 Independent Contractor?

An independent contractor may work for you, but they are not an employee as defined by the IRS or most state laws. Independent contractors operate a separate business and may even work for multiple clients besides you. Contractors typically submit an invoice for their completed work, expenses, and other costs. They are responsible for their own taxes and other expenses they incur.

Independent contractors are far more common than ever before, especially in the post-Covid era. An independent contractor reports their compensation on a Form 1099-NEC (Nonemployee Compensation) if they received over $600 in compensation.

Independent contractors for a business often include, but are not limited to:

  • Freelance writers who are paid per assignment
  • Delivery drivers who own their own company
  • Consultants who advise your company for a specific amount or rate
  • Gig workers paid through an app
  • Freelance designers or developers working on a specific project

Contractors set their own hours and largely control the nature of their work day. They are not under your direct supervision like an employee. Instead, they are given a task and guidelines with latitude to complete it on their own.

Should I Hire My Worker as a 1099 Independent Contractor or W-2 Employee?

Whether you should hire a W-2 employee or a 1099 independent contractor will largely depend on what you need and the resources you have available. Many small businesses start out using independent contractors to save money. Larger and developing businesses often use employees to support their ongoing business.

You might prefer a 1099 independent contractor if:

  • You cannot guarantee ongoing work
  • You need help with a specific assignment or project
  • You want a person’s expertise, but do not need their services on a daily basis
  • The work does not require a set location or specific hours
  • The job can be handled by someone independently without a lot of supervision
  • You want to avoid paying for benefits for a specific position

You may prefer a W-2 employee if:

  • You have ongoing work for the position you need
  • You want supervisory control over the worker
  • The worker needs to have scheduled hours and a specific location

Know the Differences with the Help of Skilled Business Attorneys

At Kondori & Moorad, LLP, our dedicated business and contract attorneys know the differences between independent contractors and W-2 employees. We help you decide which option is right for you and handle the legal differences between them. Contact us today to get started.

Previous Post
Special Needs Trusts
Next Post
Probate and Fiduciary Obligations