A 1099 is an independent contractor, considered self-employed, who comes to an agreement with a business for payment and work, while a W-2 employee is considered to work for the business itself, explains Strictly Business. If the business dictates what work is done by an individual, he is considered an employee.
Because hiring an employee versus hiring an 1099 independent contractor requires providing additional employee benefits, hiring 1099 contractors can lower expenses, according to Strictly Business. For example, an employer is required to consider employee taxes, or pay for Social Security and Medicare taxes. Furthermore, businesses do not have to consider worker compensation or unemployment tax premiums when hiring independent contractors.
However, if worker classification is mistreated by the business, and the government reclassifies a worker as a employee instead of a contractor, the business can face harsh repercussions, notes 10 til 2. Therefore the classification of a employee versus an independent contractor has guidelines published by the IRS. In short, to be considered a contractor instead of an employee, the business cannot have behavioral control, meaning freedom for the contractor to decide schedule and work logistics, financial control, meaning freedom for the contractor to manage his own finances and self-advertise, or relationship control, meaning freedom for the contractor to work with other businesses or clients either simultaneously or in succession, states Strictly Business.