An independent contractor is defined as a person or entity engaged in a work performance agreement with another entity as a non-employee. As an independent contractor, these workers are considered self-employed. This is an important distinction to make as the term “independent contractor” has become widely convoluted and misused, and thus companies need to be careful about who they designate as an independent contractor.
The current corporate climate is a very pro-employee environment where it is thought that most workers don’t want to be independent contractors because they receive no company benefits. There are even speculations that many employers are just classifying certain personnel as a 1099-independent contractor, so the company doesn’t have to pay additional taxes or benefits for that person. While there are likely cases where this is true, employers, especially those with a lot of 1099 employees, should be warned to be careful with their independent contractor classifications so that they are not assumed to be one of these cases.
A proper independent contractor is someone who has multiple other clients and only does bits and pieces of work for their employers. Tests have been developed to help employers designate independent contractor status. One of the most common and simple tests is:
A worker is an employee and is NOT an independent contractor (1099), if:
- The employee only works for you
- The employee performs a core business function
- You control how work is done – performance management
Having the proper employee designation is important as otherwise employers are at risk of facing fines and back taxes.
DII is your partner in the workplace. Our team of experts can work with you to understand how to classify your employees, and which can incur 1099 status. Please contact your DII representative for more information. #IndependentContractors #1099