Flexibility remains extremely important to workers from every demographic. Rather than taking a traditional full-time W-2 position, a growing number of workers are choosing part-time, and 1099 contract work instead.
Although the gig economy has been active for some time, the pandemic and resulting “Great Resignation” have resulted in more workers interested in exploring the possibility of work situations other than full-time. With shortened hours and a dearth of staff, this arrangement is becoming increasingly attractive to employers and employees alike.
That said, before embarking down this path, it is important both the employer and the contract worker understand the differences between a W-2 worker, a 1099 worker and an independent contractor. These differences impact both the worker and the employer regarding how an individual is paid and how taxes are withheld from each check. Not fully understanding the arrangement could result in a nasty surprise come tax time – resulting in a potential audit for the employer and a hefty tax bill for the worker.
Breaking it Down
W-2 – reports wages, tips and other compensation paid to an employee
1099 – reports payments made of at least $600 during a trade or business to a person who is not an employee, the worker is responsible for paying Medicare, Social Security and income tax
Independent contractor – no tax withholding on income received as a self-employed individual
IRS.gov
Worker’s Classification
Figuring out a worker’s classification typically comes down to the level of control over the behavioral and financial aspects of the work according to the IRS.
- Behavioral control – right to direct or control how the worker does the work
- Financial control – right to direct or control economic aspects of the worker’s job
- Relationship of the parties – how the business and the worker perceive the relationship
*IRS.gov
Once the project details, timeline, payment and desired outcome are established, the work is turned over to the independent contractor for completion using the contractor’s own tools and equipment. The work is paid for upon completion or the contractor may negotiate 50% of the payment upfront and the remaining payment upon completion of the project. A worker is not considered to be an independent contractor if they are performing services that are controlled by an employer.
Help Available
Employment agencies such as Staffing Kansas City can help companies of all sizes successfully navigate short- and long-term staffing needs. Staffing Kansas City offers temp-to-hire and contract-to-hire positions for accounting, sales, secretarial, accounting and customer service positions among many others throughout the KC Metro.