Many times I'll get the question, "can I 1099 that person?" or "can I hire this person as a 1099 employee?"
I usually say "1099 is not a verb, and there's no such thing as a ‘1099 employee'” because a 1099 is an IRS form that is provided to independent contractors.
Implicit in these questions is the idea that a business owner or employer can actually apply whatever label they want to a relationship with a person they hire. If they feel that way, most of the time they'll apply the label of independent contractor because there are far fewer regulatory tax and legal requirements. But I tell my clients that you don't really have the choice; it's the nature of that relationship and not your desire that is going to determine the classification.
That classification as either “independent contractor” or “employee” is absolutely essential. It dictates whether or not you have to withhold income tax, both state and federal; whether you have to pay Social Security, Medicare and unemployment taxes; whether you have to cover that person under your unemployment insurance policy; whether the Fair Labor Standards Act applies to that person; and more. Additionally, the base number of employees that a business has often dictates whether certain laws apply to that company or not.
So when bringing on a worker, you have to make sure that you classify the person properly. This classification is based on a number of factors that we will go over in a later post.
If you have any questions, please contact me: [email protected], or go to my website, taylorlegal.com.
KATHERINE L. TAYLOR, ATTORNEY AND CPA
5850 Waterloo Rd