1099 vs W2: What works for your company?
Understanding the difference between an employee and an independent contractor is more important than ever before.
The federal government has recently increased enforcement of perceived abuse of worker classification
laws. As a result, many companies have been penalized and are paying hundreds to millions of dollars in fines.
Learn how you can protect your company from this risk:
EMPLOYEE OR CONTRACTOR? Before classifying a worker, one needs to understand how the government
defines an employee and an independent contractor. It really comes down to control and independence.
In short, a company “hires” an independent contractor’s services, not the contractor. The company can
ask the contractor to meet a specific goal, but the contractor supplies the tools to do the work and
decides how, when, and where the work is completed. On the other hand, workers are considered
employees when the business controls how and when they perform their work.
The distinction between employee and contractor is important for a number of reasons, including:
- Whether a business is liable for withholding and remitting federal Income, Social Security,
and Medicare taxes from the worker’s pay
- How fringe benefits are taxed
- The right to deduct certain kinds of expenses
- Whether a business needs to comply with state labor laws
- Whether the company needs to pay minimum wage or overtime
- Whether the workers are governed by disability and medical leave laws
AN EASY SOLUTION. To avoid the risk of misclassification many businesses pass the responsibility
onto a staffing agency, such as Digital People. By doing this, you can rely on our staffing experts to guide you in a direction that aligns with the law. We recruit, screen, and hire the people you need. These contractors become employees of our staffing agency, not your company.
Working with Digital People provides a number of advantages for you and the contracting individual. As the employer, we are responsible for a number of costs associated with contract employees including payroll and unemployment tax. The contract employee is also able to take advantage of additional benefits offered by Digital People including health insurance holiday pay, service bonus and our 401K program. Once a contract has ended, we also handle the unemployment process for the individual.
We can also help you if you are already working with an independent contractor and have concerns about the law. If your contractor agrees to it, we hire the worker as our employee so that you can continue your working relationship, rest assured that you aren’t risking misclassification penalties.
With a basic understanding of worker classification laws and a partnership with Digital People, you can protect your company and prevent costly misclassification mistakes. To learn more about how Digital People can help, call us today.