If you own a business, you might hire 1099 contractors on an ongoing basis, or for a particular project. Contractors – or as they might be referred to today gig workers – can offer your company flexibility and provide several financial and legal benefits. While using contractors instead of employees can offer solutions to many businesses, the differences needs to be well understood — and whether this employment strategy makes sense for the growth of your company.
What is a 1099 Contractor?
Also called “independent contractors,” 1099 contractors provide services to a company, but they are not considered employees. 1099 contractors can include a wide range of workers, including gig workers, freelancers, and outsourced workers. Unlike an employee, a 1099 contractor is not under the control of the company — but rather, they are in business for themselves.
The Internal Revenue Service (IRS) looks to many legal nuances when it comes to whether a worker can be classified as an independent contractor. The IRS looks at three general categories to evaluate whether a worker is an employee or an independent contractor, including behavioral control, financial control, and the relationship of the parties. Business owners must carefully consider the situation to ensure the correct classification. Critically, even inadvertent misclassification can result in substantial financial penalties, liabilities, and reputational harm.
Remaining Compliant When Hiring 1099 Contractors
There are several things a business must remember to remain compliant with the law and IRS regulations when hiring 1099 contractors. Specifically, a business must know the following in order to not run afoul of their legal and tax obligations:
- 1099 contractors must be properly classified
- A 1099 contractor must work independently and free from the company’s control
- Businesses must keep a W-9 Form on file for contract workers and report to the IRS
- 1099 contractors are not entitled to employment benefits
- 1099 contractors are responsible for paying their own taxes
- 1099 contracts are responsible for their own insurance
Although 1099 contractors are not employees, it is still a good idea to have a written employment agreement in place. This document can help to clarify the business relationship and outline the obligations and expectations of each party. Businesses should also include a work-for-hire clause to ensure ownership of any work meant to be copyrighted, trademarked, or patented.
When Does it Make Sense to Hire 1099 Contractors?
1099 contractors. offer flexibility and can fill in gaps where it wouldn’t be financially viable to hire additional employees. They can also provide certain skills or expertise to a company that might not be needed on a daily basis.
1099 contractors are easier to hire and less expensive for a company since they need not be provided with healthcare, vacation time, and other benefits. They can also help your company expand if you do not yet have the resources to hire a team of employees. However, some businesses may need the dependability of having a full-time staff. The business should carefully assess both their short-term goals and long-term objectives to determine whether hiring 1099 contractors is right for their company.
Contact an Experienced New York Business Attorney
If you’re considering hiring 1099 contractors for your company, it’s vital to have an experienced business law attorney by your side who can best advise you and assist you with drafting the necessary agreements. Offering skillful counsel and high-quality legal services, Brinen & Associates assists clients with a wide variety of business matters, including those involving 1099 contractors. Call (212) 330-8151 or send us a message to learn more about how we can assist you.