Is He/She Really a 1099 Worker?
As the economy continues to improve, you may be considering cautiously adding employees. Often, the thought will be to hire a new person or two on a temporary basis. However, if you choose to hire someone as a 1099 contract worker as opposed to a traditional W-2 employee, you must be very careful to follow the Department of Labor and IRS guidelines in doing so, or you risk substantial financial penalties.
Most important, do you control or direct only the result of the work? If you insist that he/she follows your processes and procedures throughout the project, this is a "red flag" that the individual is not an independent contractor.
However, if they are registered as a sole proprietor or LLC and work for others, as well as you, the 1099 status may be upheld, especially if they:
- work out of their own place of business
- determine the number of hours they are available to work for you
- use their own tools and equipment
- are paid by the project rather than a salary or hourly wage and have a written contract with you stating that they will be paid as an independent contractor
By contrast W-2 employees, even temporary ones:
- must follow your instructions about how the work is to be done
- have specific work hours set by you
- are paid in regular amounts at set intervals
- receive training from you
- work on your premises (although not always, considering today's technology)