W-2 vs. 1099?
When is a worker an employee and when is a worker an independent contractor?
Employers worry that they may have an independent contractor that is actually an employee. Please remember this important fact: There is no such thing as a 1099 employee.
The worker is either an employee, requiring tax withholding and an issued W-2, or they are an independent contractor.
Things change from state to state. We are asked this question quite often by our payroll consulting clients, not only here in Orlando, but throughout the state of Florida and even nationwide.
Here is a list of questions the state of Florida uses to determine the status of a worker:
A “Yes” answer for the following questions indicates that the worker is an employee:
1. Does the business provide instructions to the worker about when, where and how he or she is to perform the work?
2. Does the business provide training to the worker?
3. Are the services provided by the worker integrated into the business’ operations?
4. Must the services be rendered personally by the worker?
5. Does the business hire, supervise and pay assistants to the worker?
6. Is there a continuing relationship between the business and the worker?
7. Does the business set the work hours and schedule?
8. Does the worker devote substantially full time to the work of the business?
9. Is the work performed on the business’ premises?
10. Is the worker required to perform the services in an order or sequence set by the business?
11. Is the worker required to submit oral or written reports to the business?
12. Is the worker paid by the hour, week or month?
13. Does the business have the right to discharge the worker at will?
14. Can the worker terminate his or her relationship with the business any time he or she wishes without incurring liability to the business?
15. Does the business pay the traveling expenses of the worker?
A “Yes” answer for the following questions indicates that the worker is an Independent Contractor:
16. Does the worker furnish significant tools, materials and equipment?
17. Does the worker have a significant investment in the facilities?
18. Can the worker realize a profit or loss as a result of his or her services?
19. Does the worker provide services for more than one firm at a time?
20. Does the worker make his or her services available to the general public?
Confusing? Yes. Is it risky? Yes it is. The federal government and the IRS are under a directive to reduce the abuse of the 1099 classification. Make sure your contractors are truly independent contractors. If you are unsure, you may want to check with an expert.
If you would like further information from us please call 800.788.8343 or use the form below: