What Is A 1099 Employee? Everything You Need To Know

What is a 1099 employee?

A “1099 Employee” is a term used to address independent contractor or freelancer in United States. This term is derived from the IRS form 1099-NEC which is used to report the income of the individual who are not considered employee but still receive compensation for their services.

Key Points about 1099 Employee:

1099 employee are individual contractor and are not part of the organization instead they are hired by them on contractual basis for completing a specific project.
Unlike W-2 employee 1099 employee who earn more than $600 from their employer need to submit their income tax details using the Form 1099-NEC issued by IRS.
Unlike traditional employee 1099 employee are required to file their own income tax. this mean there income are not subjected to withholding from the employer for income tax, social security or Medicare.
1099 employee have flexibility in how they work, when they work and where they work. they are not bound by traditional 9to5 corporate job.
since they are freelancer they do not enjoy the benefits such as health insurance, retirement contribution and paid time off from the employer. They are responsible for managing their own finances.
1099 employees are often defined by contractual obligation or statement of work. these contracts outline the scope of work, the remuneration and timeframe of the project and other relevant details.

Full-time employee vs. 1099 Employee

	Full Time Employee	1099 Employee
Employment Relationship	They work under the direction of the employer and follow company policy and procedure.	They are independent contractors hired to perform a specific task for a given period of time.
Work Hour	Full time employee work a standard hour basically around 40 hr per week and are eligible for overtime pay	Independent contractors have more flexibility in terms of work hour and are often paid based on completion of project then time spend
Tax Withholding	Employer withhold incomes taxes, Medicare, social security of the employee and are required to fill W-2 form	Independent employee are responsible for handling their own income taxes
Job Security	Full time employees are protected by labor laws and regulation and enjoy greater job security and stability.	Since they work on project basis they don’t enjoy the stability of a job but has the opportunity to work with multiple employer or client
Expenses Reimbursement	Any work related expenses such as travel cost, equipment cost borne by employee are covered by employer	1099 employees are responsible for their expenses including transportation and equipment charges.
Training and Development	Employers invest in the training and development of their full time employees to enhance their skill and learn more about their services.	No such training and development is provided to 1099 employees

What are the most common types of 1099 employees (independent contractors)?

1099 employee or freelancers cover a wide range of service and industry. here are some of the most common type of 1099 employees:

Freelancers: Such as writer, graphic designer, photographers who work on project to project basis.
Consultant: Expert who provide advice and guidance to business related to specific service such as lawyer, finance consultant.
Software Developers: company often hire programmers and developers to create software and application for them and usually hired on a project basis.
Web Developers: these professional are hired to design and build website for the clients. they may work independently or work as a part of a team.
Marketing Specialist: these are independent contractor specializing in marketing services such as SEO, Copywriting, digital marketing, social media and performance marketing.
Accountant and Bookkeepers: these are finance professional who are hired to manage the account, financial statement, taxes of the clients on contract basis.
Event planner: Professional who organize and coordinate events like wedding, conference and corporate gathering.
Fitness instructor: Professional like yoga instructor, personal trainer and fitness coaches who operate independently and are hired per-session or per-project basis.
Therapist: Professional who are hired for providing counselling and therapy session to clients.
Translators: These are hired by tourist in a foreign land to provide translation or interpretation service for their tour.
Handworkers: Skilled professional such as plumber, carpenter who operate independently.

Why hire a 1099 employee?

Hiring a 1099 employee offers several advantage:

Specialized skills: Independent contractors often possess specialized skills in particular fields and hiring them will help employer gain access to specific talents needed for a project without having a long term commitment from hiring a full time employee.
Cost saving: An employer can reduce their cost as they don’t have to provide the benefits like health insurance, retirement contribution and training and development.
Reduce overhead: employer can reduce their overhead cost such as office space, equipment and utilities as all these are available by the 1099 employee.
Access global talents: 1099 employee can work independently and remotely allowing business to access a global pool of talent and hire the one best suited for the job which other would’ve been impossible with local talents.
Risk Mitigation: 1099 employees are responsible for their own liability and business expenses. they can mitigate the risk for employer as contractor assume certain responsibilities related to their work.

What paperwork do I need for a 1099 employees?

Here’s a list of paperwork that 1099 employees need:

Form W-9: this is a tax form required by IRS to be filled by individual contractors. The form request the contractor name and taxpayer identification number (TIN) for tax reporting purposes and identifies if a freelancer is eligible to work in United States.
Written agreement: A written agreement is a contract that outline the terms and condition of the work, deliverable, payment terms and other relevant provisions. Both the parties can negotiate the terms of the contract and are required to sign the contract when they agree to the terms and condition of the contract. The contract provides a legal framework to both the parties and upon breaching the terms of contract the injured party can held other accountable in court.
1099- NEC: Normally this are required by the freelance if the organization pay them more than $600 a year. This 1099- NEC reflect how much an individual contractor earned while working with you. the due date for the form is 31st January and the company need to send this form to both the contractor and IRS.
Invoices: Independent contractors are often required to submit invoices to clients for the services provided by them. this invoice should include all details such as contractors name, contact information, description of services, hours worked and total amount due.
Confidentially agreement: employer should sign a non-disclosure agreement with the contractor that prohibit the contractor from disclosing secret information about the company to outsiders..
Form W-8BEN and W-8BEN-E: this form are used by the employer to gather tax related information from foreign contractors. the employer confirms that the employee recruited are not the citizen of the US and work outside form other country. Employer are not required to submit this form by the IRS and save it for audit purposes. if the foreign contractor is a company they must complete the form W-8BEN- E and send it to employer.

How does a 1099 employee get paid?

When hiring an independent contractor the employer need to set up an agreement with them stating the terms of payment, how often they’ll be paid and what the measurable for payment.

There are three primary methods of compensating an independent contractor:

Hourly payment: Contractors are paid based on the number of hours worked
Retainer Based Payment: involves clients paying a fixed fee or retainer fee to the contractor in advance of the work.
Project based payment: also known as fixed-price involve agreeing on a fixed rate for the entire project regardless of the the time spent by the contractor.

Unlike salaried employee they don’t receive a fixed salary and additionally there are also not entitled to overtime wage that are provided to traditional employee. The payment method for contractors include cheques, direct deposit, pay cards and utilizing the company payroll. It is essential for the employer to the payment timeline set in the contract and comply with tax regulation to ensure a smooth and legal payment process.

Can a 1099 employee collect unemployment?

No, typically independent contractor who receive 1099 income are not eligible for collecting unemployment benefits. they are generally reserved for traditional employees who are laid off, furloughed or lost their job involuntarily.

Can a 1099 employee sue for wrongful termination?

Wrongful termination applies to employees rather than independent contractors. they are mean to provide legal rights and protection associated with termination to traditional employees. However independent contractors can raise a dispute if the terms of the contract are violated.