What Is A 1099 Contractor? Definition & Benefits
Independent Contractors – Easy as ABC?
If you routinely hire 1099 contract workers, you should become familiar with their proper classification.
The benefits of utilizing an independent contractor identify many of the problem areas businesses run into when hiring employees. The ability to “1099” some individuals allows businesses to walk the fine line of having the advantages of a staff without the disadvantages of paying a staff.
5 Benefits Of 1099 Contractors
- Are technically a hired vendor.
- Have no protection in their favor should anything go awry while working at your business
- Don’t pay into or receive unemployment/SSA when their contract is complete
- Can be terminated without notice.
- Don’t receive benefits, are not entitled to disability or worker’s compensation
In light of the 2015 NJ Supreme Court ruling in the case of Hargrove v. Sleepy’s, it is important that any companies employing contract workers ensure that they are complying with the rules that determine this status. The last thing most businesses want is to be inspected by the Department of Labor.
Don’t let ignorance and inadvertent failure to adhere to laws get your business into a sticky situation. Now is the time to review your procedure for considering a worker an employee vs a contract worker.
What Is A 1099 Contractor?
According to the NJ Department of Labor, the ABC test, which is borrowed from the SSA determination of employee status, is as follows:
- The individual is free from control or direction over the performance of services, both under his contract, AND
- The service is either outside the usual course of the business for which it is performed, or the service is performed outside of all the places of business of the enterprise for which it is performed, AND
- The individual is customarily engaged in an independently established trade, occupation, profession, or business that will persist despite termination of the challenged relationship.
If a contract worker does not meet any one of the three criteria, they should be classified as an employee.
What does this mean in plain English?
- The worker cannot be dictated how, when, or where to work by the employer. The worker’s services should be self-sufficient, not trained by the employer.
- The work must be different than the everyday purpose of the business. E.g – a web design company cannot hire a freelance web designer but CAN hire a freelance public relations person.
- This independent contractor must engage in performing similar duties for other employers.
As with any new ruling, the coming months will certainly bring both questions and clarification. Feel free to reach out to us for further information, or an introduction to an HR professional for a detailed analysis.
Need Forms For Your 1099 Contractors?
The IRS provides information and forms for you to use with you to download and use for your 1099 workers.
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