Are you a 1099 worker or W-2 employee – and does it matter? From an employer’s standpoint, it certainly makes a big difference… but you may be surprised to learn that many employers misclassify employees. Sometimes employers make genuine mistakes, but in other cases, employers willfully misclassify employees in order to save money.
Here’s what you need to know.
1099 vs. W2 Employees: The Big Differences Between the Two
Both 1099 and W-2 refer to tax forms – but they’re issued to different types of workers. Independent contractors, who cover their own employment expenses and taxes, receive 1099s. Employees whose employers withhold payroll taxes from their earnings (and cover employment expenses) receive W-2s.
That means you’re looking at more than just the tax forms when you’re determining whether your employer has properly classified you. The bottom line is that contractors and employees have different workplace rights, so it’s important that you understand what type of worker you are. That way, you can be compensated the way you should be. Following are the differences when it comes to 1099 vs. W-2 employees.
Related: Salary misclassification: The basics
When you are an independent contractor, the 1099 tax form applies to you. You can only be a 1099 employee if you are a person (or business entity) that undertakes a contract to provide materials or labor to perform a service or do a job. Some of the most common professions for 1099 employees include:
- Hair stylists
- Wedding planners
- Auto mechanics
- Web designers and developers
When you’re a W-2 employee, you work for wages or salary. You may have an employment contract, but you generally work at an hourly rate or for a salary. Nearly every industry uses W-2 employees.
Related: California wage and hour laws
Differences Between 1099 Employees and W-2 Employees
The jobs that both 1099 employees and W-2 employees perform can be very similar – but the execution of those jobs can be vastly different. In this way, the government distinguishes 1099 vs. W-2 employees. For example, a 1099 worker can perform the same services for many employers at once (such as a plumber or a copywriter), but a W-2 employee usually only performs the services for one employer.
The big differences come after the job is secured – that is, the 1099 worker has agreed to a contract and the W-2 worker has been hired. The table below outlines some of the major differences between the two.
|Sets own hours||Generally works at times and durations set by the employer|
|Can work from any location, even across the world||Usually, but not always, works at the employer’s place of business|
|Does not receive employment benefits||Is eligible for employment benefits|
|Works independently often (or most of the time)||Generally works under the employer’s control|
|Can perform tasks as they see fit, without the employer’s direction||Must usually stick to the employer’s guidelines on performing tasks, and may be subject to “spot checks”|
|Pays the costs associated with performing the job, such as internet, computer software and electricity that powers the office||Does not incur personal costs while performing the job, and doesn’t make investments in the performance of the job|
|Pays own taxes||Employer withholds taxes and pays the employee what’s left over|
|Cannot use unemployment benefits||Can typically be eligible for unemployment benefits under certain circumstances|
|Can have a contract terminated without reason or notice||Can usually only be fired for good cause, and often only with notice|
|Gets pay according to the contract’s terms||Gets at least California’s minimum wage and is covered by employment laws|
|Is not usually protected by discrimination or workplace safety laws||Is protected by discrimination laws and workplace safety laws|
Related: Gig economy workers and California labor laws
Do You Think You’re Misclassified When it Comes to 1099 vs. W-2 Employment?
If you think your employer has misclassified you based on California’s law, you could be entitled to financial compensation. Call us at 818-230-8380 or fill out the form below to discuss your situation – we can help.