Should I 1099 or W2 my employees?
The question of whether to pay your employees by W2 or 1099 has many answers. And depending on what you hire the employee to do, answers that question in most cases. If you hire the person to perform a specific task or on a temporary basis then 1099 contractor status may be the way to go. But make sure you look at the whole situation from both sides and consult legal advice.
Most business owners believe that paying their employees by 1099 saves them money. They might think they do not need to pay for Worker’s Compensation and they will not need to pay payroll taxes or payroll costs each pay period. But be careful.
State Labor Boards have come down hard on employers not treating their employees as true employees. And new laws in many States have also favored the employees.
When a 1099 contractor or employee gets hurt on the job - you are expected to pay for their injuries and lost wages. Always obtain a Workers Comp certificate when contracting workers. If the 1099 contractor does not have their own coverage, then you are responsible for their injury costs.
This is why Work Comp Carriers ask to see the certificates of all contractors you hire. The Carrier will charge you on your Work Comp policy for their payroll (or total cost paid) at the end of the year audit if the contractor does not have their own policy.
Also if the 1099 employee files a complaint with the State Labor Board or files for unemployment compensation, then you will need to produce the contract signed at the time of hiring, by both the 1099 employee and yourself and it will need to clearly state that the contractor is not your employee.
Make sure to follow the Labor Laws of your State, Federal and Local governments.
Some red flags include: do you have control over where, how or when the job is to be completed? The State Labor Board will also ask if they are hired for a specific purpose, does the 1099 contractor use your equipment or their own, and do they also work for other companies besides you.
So if you want worry-free control over what the employee does, then W2 is the way to go. Paying the employer's portion of tax and payroll is better. And these costs are deductible.
Make sure to ask the advice of your Legal Team advisors as it pertains to your unique situation.