Submission Date:
Question:
We are thinking of bringing on a 1099 contractor. What should we be aware of?
Answer:
Many government agencies provide guidance on hiring a 1099 or an employee, and the guidance is centered on the direction and responsibility of the worker and control of work to be done. The first step is knowing the difference between a ‘contractor relationship’ and an ‘employee relationship.
On one end of the continuum, you have a painter coming to paint your house. You review an estimate, sign a contract, tell them what color you want, what to paint and the rest is handled by the painter or painting company. This includes methods, paint, supplies, and even expenses which are often accounted for in the bill you receive once the project is completed.
The above is a true 1099 contractor relationship. Direction and control lie with the contractor, as does the risk of profit or loss.
Employee workers are oriented and subjected to your company policies and total direction on when and how the work needs to be completed, trained, provided supplies and workspaces, and reimbursed for business expenses and travel. Your employees are paid an agreed upon wage regardless of how well the organization does financially. The direction and control over the work lies with the employer, as does the risk of profit or loss.
In our example, the painting company owns financial responsibility for the work and the employment relationship with the workers that paint your house.
Additionally, the protections, rights, and benefits an 'employee' receives would not be available to a contractor to do the same work. That presents an obvious problem in the view of the DOL, IRS, Worker's Compensation, and EEOC. The government agencies vested interest in ensuring worker’s rights are properly protected makes this a high-profile topic that is very much on their radar.
To determine if you need a 1099, evaluate the work that needs to get done. Is it core to the mission of the organization, long-term, and being done by a current employee? If yes, that role that should be classified as an employee.
Unfortunately, there is no ‘catch-all’ provided by governing agencies to help with classifying your workforce. The guidelines for the IRS and DOL can be found here;
Federal DOL: https://www.dol.gov/agencies/whd/flsa/misclassification
The following includes some key guidelines that will help ensure you are classifying your workforce correctly. The more statements that apply below indicate that your worker is likely an employee:
- Perform work that is core to the business or mission
- Perform work that others are already doing in the organization
- Are paid a set hourly or weekly rate
- Are trained by the organization
- Receive all supplies, work resources, tools, and spaces from the organization
- Are under supervision by a staff member
- Receive expense reimbursement
- Do not have a business or work with other businesses
The most risk-averse method of hiring a worker is as an hourly employee. Stepping away from this classification with a worker should be an exercise in ensuring the work relationship fits the guidance given for a ‘contractor relationship.’
A good rule of thumb in any employment situation is to err in favor of the worker. In the case of uncertainty about worker classification, classify as an employee.
