There can be confusion surrounding a 1099 form and a W2. These are both tax forms, but they apply to workers who are classified differently. A W2 form is completed for an employee of a company, while a 1099 is more of a ledger of payments made to a contracted business or entity. The appropriate classification of employment status is crucial to your ability to plan and prepare for your life financially. If you think your employer has misclassified you, you may benefit from speaking with our San Francisco employee misclassification attorney with The Armstrong Law Firm.
1099 – What it Means
An independent contractor is a classification in which an individual works for themselves or their own small business. The California Department of Industrial Relations (DIR) outlines the primary guidelines of an independent contractor as the ABCs where a contractor satisfies the below requirements:
- Free from control or direction of the hiring entity in connection to the performance of the work
- The worker performs work that is outside the usual course of the hiring entity’s scope
- The worker is engaged in an independently established trade or business as the nature of work they perform for the entity
- The contractor will set their own work hours
- The worker determines their work location
- A contractor pays for any fees or costs associated with their trade or business
- An independent contractor pays their own employment taxes
- Worker’s rights laws generally do not apply
An additional trait of a contract position is that the contract worker generally provides the same services for multiple entities, such as a painter or writer, while an employee typically does all their work for one entity. Many fields of work utilize independent contractors, such as hair stylists, electricians, consultants, or web developers or designers. These positions tend to focus on a specific task to complete and invoice for pay based on the work completed.
W-2 – What it Means
An employee who is hired by the employer and does not meet the above criteria of an independent contractor. A W2 includes wages paid as well as the amounts paid in taxes, while a 1099 only shows the rates paid because the contractor is responsible for paying their own employment taxes. While this is not the only difference, it is one of the major differences between a 1099 employee and a W2. Some of the characteristics that distinguish a W2 worker from a 1099 are:
- Eligible for health benefits
- Employer pays employment taxes
- Work hours are determined by the employer
- Protected by workers’ rights policy
- Any needed equipment or materials are provided by the employer
Additionally, an employee may report to leadership, have mandatory weekly or monthly meetings, or submit to performance evaluations. An employee is also eligible to collect workers’ compensation or unemployment if they meet the criteria, whereas a 1099 worker is not eligible, regardless of circumstances.
Classifying Workers
Because of the reduced financial and tax burden for contractors, it is not uncommon for employers to misclassify their W2 employees to avoid providing necessary benefit packages or liability. If you have been misclassified by an employer, you may be eligible for compensation through multiple avenues. You have legal protections as a W2 employee and employers that violate those should be held accountable. Let our San Francisco employment attorney help today.