1099 does not equal W-2

As we wind down the year, I want to extend my personal best wishes to everyone for a joyous holiday season.

Thank you for taking the time to read my words. I sincerely hope they have been insightful and helpful to you.

I’ll do my very best to share more in the years to come.

Mark H. Weiss

Going 1099 when you should be going W-2 can be a very risky business with huge consequences.

The next time a Staffing agency shows you a rate that is considerably cheaper than most, make sure they are paying for W-2 employees. If they aren’t, then you could be at risk for payroll tax, insurance, ACA, and PSLA issues. You could also be at risk paying for mark-up that doesn’t even cover these mandatory costs.

Reputable employers play by the rules and never replace W-2 with 1099, you shouldn’t either!

The difference explained

What factors determine whether a laborer is an employee or an independent contractor? To which workers will you issue a 1099? To whom must a W-2 be provided?

The 1099-versus-W-2 matter, which constitutes a much grander-scale issue than the reporting of wages, can be confusing to all involved. And it may be tempting to take what appears to be the easier 1099 route, but employers are advised to get a handle on this perplexing situation, once and for all.

“Worker classification is tricky business,” notes Robert Ditmer, who poses the million-dollar question:  What makes a worker an employee?

The ABC test, as noted below, can help an employer determine whether any worker is an employee or an independent contractor.

To be classified as an independent contractor, each of these three factors must apply:

The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

The worker performs work that is outside the usual course of the hiring entity’s business.

The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

“Several states require the use of the ABC test—in part or in whole—to determine the status of workers. The government’s default status of a worker is as an employee unless they can meet specific guidelines. The employer is responsible for the correct categorization of workers or could face costly fines,” shares Jean Murray.

It’s helpful to note that much of the distinction between an employee and an independent contractor centers around the issue of control. The amount of control over how, when, or where the worker performs his/her tasks is a critical component in determining independent contractor status.

Justworks notes, Whether someone is an employee and whether payments to them are subject to employment taxes is a fact-intensive inquiry, which focuses on, among other things, whether the business has the right to control the service provider’s work, financial aspects of the service provider’s work and the relationship between the service provider and the business.”

Temporary Workers

“When you hire a variety of people, some part-time or temporary, it can be confusing to determine how to classify and pay them properly,” states Ditmer.

The 1099 versus W-2 dilemma, while it may appear to be trickier when temporary or seasonal laborers are part of the equation, the same guidelines apply for determining the employee versus independent contractor question.

“When practice owners hire to fill a short-term need, they mistakenly believe that the temporary workers are not employees simply because of their limited length of time in the practice,” says Michelle Corbo, an employment practices analyst at CDA Practice Support. “Unfortunately, this leaves the employer at risk when they are out of compliance with new-hire documentation, classification, and pay requirements,” she adds.

While the scenario of fewer hours, days, weeks may appear to be a deciding factor, in the employer’s mind, there’s no provision in the law based solely around the amount of time worked. Regardless of whether the employee works an hour, a day, a week, or on a trial basis, they are typically considered employees unless the scenario meets the ABC test.

Check out pages 7-9 of this IRS Publication, Employer’s Supplemental Tax Guide, for a more detailed analysis of how to determine independent contractor status.

Our staffing agency can help

If you utilize the services of a staffing agency, their services can aid you in navigating the 1099 versus W-2 dilemma. This is where Action Staffing Group can save the day. Because staffing is what we do every day, all day, our team can take the guesswork out of worker classifications and guide your company in the pursuit of compliance with all employment laws.

We are experts at managing temporary and short-term employees. Our candidate pool is brimming with qualified personnel to meet your light industrial employment needs, including e-commerce and fulfillment, as well as retail/wholesale, and food preparation services. We can place for temp-to-hire, long-term and short-term projects, direct placement, and executive search. Give us a call today to see what Action Staffing Group can do for you!

2020-01-24T16:00:16+00:00