In simple terms, 1099 employees are self-employed or independent workers working in a company as freelancers. With the revolution in communication and workplace mobilization, it has become increasingly smooth to connect with clients and deliver work online.
Thus, many businesses are considering hiring 1099 employees to increase work flexibility and productivity. In case, you also are considering hiring a 1099 employee, here are all the things you should know.
Who Is a 1099 Employee?
A 1099 employee is an independent worker who needs to report the income to the IRS by filling out a 1099 tax form. They mainly include freelancers, independent contractors and consultants and are actually non-payroll workers of a company.
When a company hires a self-employed worker, it is treated the same as a contractor signing a contract with a business. As a result, the individual and the company must work together to complete the task at an agreed rate.
What Are the Different Categories of 1099 Employees?
The following are the different categories of 1099 employees that provide services to the general public as an independent contractor:
- Dentists
- Doctors
- Real Estate Agents
- Veterinarians
- Contractors
- Accountants
- Lawyers
What Are the Advantages of Hiring 1099 Employees?
The following are the benefits companies can enjoy by hiring 1099 employees over W2 workers:
- Lower Business Expense
If companies recruit 1099 employees, they do not have to pay taxes to the government on behalf of the independent worker. Moreover, there is no requirement to provide health insurance, unemployment insurance, employee compensation or others.
In addition, owners do not even have to give the self-employed any sick leave or retirement benefits. As a result, companies can save 30% of their cost on human capital and other business expenses.
- Better Market Agility
When working with independent workers, companies can get better market agility. In addition, unlike full-time employees working for the organization for years, management has the option of ending the working relationship with freelancers.
Thus, companies can approach new independent workers with current market knowledge to take up the task as the market changes.
- Access to Talented Human Resource
In search of full-time employers, companies often miss out on the opportunity to work with talented professionals. This is because a high chunk of people opts to work independently. They like to have a flexible work schedule, the ability to pick ones they want to work with and get the freedom to set their rates.
Thus, by hiring 1099 employees, management also gets the chance to build a working relationship with this talent pool.
What Are the Risks of Hiring 1099 Employees?
While there are many benefits of hiring 1099 employees, there are a few risks involved, too. They are:
Misclassification: Though initially, 1099 employees will be working as independent workers, gradually their relationship with the company may change over time. So, it is best to review the status of the contract every 2 to 3 months to avoid misclassification.
Penalties and Fines: If authorities find that your company misclassifies workers, it can attract huge penalties, fines, back taxes and even lawsuits.
Worksite Injuries: If the independent contractors you hire do not have insurance coverage, your company may be liable for his/her recovery.
Should You Hire a 1099 Employee or W-2 Employee?
Companies need to be agile, competitive and fast in the current business environment. Moreover, this is only possible when you hire 1099 employees along with full-time employees. First, however, you must understand how to work with independent contractors without creating risks to benefit from it.
To sum up, if you find a balance and do not cut corners with the IRS, then employing 1099 workers can benefit you. To gain more knowledge relating to business or management, you can check out our blog section.
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