1099 employees are self-employed workers, they are also known as independent contractors. According to 1099 reports, the money that every freelancer receives, the entire year to the IRS for tax objectives. The form replaces the requirement for a w-2 and signals that they are not employees, no employer is accountable to pay FICA taxes or withholding income tax, and the 1099 employees are responsible for paying self-employment taxes. A 1099 Employee is an ideal choice if you are looking for a freelancer or a contractor.
Common types of 1099 employee
These are the employees who are individuals that are in an independent trade, business, or profession, where they provide services to the public, for example-doctors, dentists, lawyers, accountants, and contractors. However, it is not convenient to classify as all the factors that influence segregation could be subjective. When it comes to the independent contractor, workers are not expected to hold the income taxes, pay FICA taxes, and in some scenarios, pay any premiums, also it might involve unemployment insurance. On the surface, hiring an independent contractor seems easier than a W-2 employee.
Should you Prefer 1099 workstyle over W-2?
The W-2 working style
Advantages: The benefit of owning w2 employees is they are honest and they tend to feel associated with the company, which becomes a driving for them to feel motivated and work giving their best in the field. These employees are trustworthy and reliable sources for the growth of the company.
Disadvantages: Choosing a W2 employee includes involving them in your payroll, handling their taxes, considering their medical insurance, and also giving unemployment insurance on their behalf. The price that is connected to W2 employees is considerably high as it covers numerous payments upon the account of the worker. Another thing is that it is not simple to cancel the agreement of W2 employees in contrast to independent contractors. This scenario makes it needful to keep a check on the behavioral issue and prepare an annual report yearly.
The 1099 working style
Advantages: Employing independent contractors results in cutting on cost. They serve to save on taxes, health insurance, retirement plans, and social contribution. Additionally, they get the support that the proprietor can meet their salaries on an ad-hoc basis for all these plans they have developed. The other advantage of having 1099 is that an employer could specifically hire a 1099 employee to solve a particular problem. This style of working gives room to have the freedom to both the parties.
Disadvantage: Freelancers do not work in a strict schedule type. Their only job is to do their work, they are not linked to the company’s norms or regulations. He can work the way he wants; he can hire someone to get the work done, the only obligation is that he has to meet the deadline. That can hamper the work quality and overall performance as they are not directly linked to the company.
The answer is yes, in most of the scenarios. 1099 style has a lot of benefits and if that is something best that defines the relationship with your employees. But at the same time, it involves some risks as well.
Worksite Injuries: Independent contractors must have their own worker’s compensation to safeguard the business from liabilities.
Misclassification: When you are a 1099 employee, you might start working as an independent contractor, but keep in mind that the relationship may change over some time. It is crucial to review that contractor’s status after every six to 12 months to avoid becoming an employer accidentally.
Penalties and Fines: Misclassification involves high risk for the venture with multiple penalties and fines with back-taxes.