What Is A 1099 Employee?

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With side hustles and freelancing on the rise, it’s easier than ever for companies to find independent contractors to hire. These workers are also called 1099 employees, and in this article, we’ll discuss what this type of employee is, examples of when you may want to hire one, and the benefits and challenges of hiring a 1099 employee.

Key Takeaways:

• 1099 employees are self-employed freelancers or independent contractors companies hire to complete a project.

• 1099 employees get their name because they file a 1099 tax form with the IRS instead of a W-2.

• 1099 employees aren’t actually employees since they don’t earn a salary, get benefits, or have their taxes withheld from their paychecks.

What Is a 1099 Employee?

A 1099 employee is an independent contractor, freelancer, or otherwise self-employed worker who a business pays to complete a project. They’re called 1099 employees because they and their employers have to file a 1099 form with the IRS when it comes time to file taxes instead of a W-2 form.

These workers don’t get salaries, benefits, or even the promise of continuous employment, which means they aren’t actually employees. In fact, calling them 1099 “employees” instead of “workers” is often discouraged to avoid confusion.

Choosing Between a Contractor and an Employee?

This quick quiz can give you a better idea of your hiring needs.

Examples of 1099 Employees

Many companies hire independent contractors, freelancers, or consultants to help with a specific project or problem. Some companies have long-term contracts with these workers, providing them with a steady amount of work, while others hire them for just one project.

Here are some examples of situations when companies may want to hire 1099 employees:

1. Graphic design. When you’re running a startup, you’ll likely need a logo and branding, but you probably won’t want to hire a full-time graphic designer off the bat. This is the perfect time to hire a freelance graphic designer to do your branding work for you.

   Even established companies hire independent graphic designers to brand their new products and branches, revamp their websites, or design artwork for billboards, signs, and posters.

2. Content writing. Many companies hire freelance writers and editors to write or update copy for their websites, blog posts, and even instruction manuals. Some writers agree to provide a steady stream of content, while others simply help with the occasional story or backlog of writing projects, depending on what the company needs.

3. Website development. When it comes to getting your business’s website up and running, an independent contractor is often the best way to go. Companies also hire 1099 employees to come in and revamp or update their websites as needed or even to provide regular maintenance and troubleshooting.

4. Marketing. While it’s typically a best practice to have an in-house marketing team of some kind, 1099 employees can help them come up with and implement new strategies, complete projects, and make the most of their efforts.

5. IT. Many companies hire 1099 employees to set up their computer networks and then to help troubleshoot and update them as they age. This is most commonly done in smaller companies, as larger ones often hire in-house IT professionals.

6. Law. Many lawyers are 1099 employees, as companies often only hire them on retainer, for short periods of time, or for projects such as mergers and acquisitions. However, not all lawyers fall under the 1099 designation, so pay attention to this when you’re hiring.

7. Bookkeeping. Many companies hire 1099 employees to do their bookkeeping (especially small businesses). This is usually more of an ongoing role, so some independent contractors may decide to work for multiple clients or just one.

How to Hire a 1099 Employee

Hiring a 1099 employee will look different for every company, but here are the basic steps:

1. Find an independent contractor. If you don’t know of an independent contractor you’d like to use, you can post your job opening on a job board – there are even some job boards designed to find independent contractors. You can also do a quick search and find freelancers who are marketing themselves.

2. Ask for a portfolio and/or references. Since you’re paying someone to complete a project, do your homework to make sure they can actually do the work well by asking for a portfolio of past projects and/or a list of references you can contact.

   Most of the time, companies won’t interview independent contractors, but they still need to check to see if their work will be up to the company’s standards.

3. Write up a contract. While written contracts aren’t always required, they’re good to have in place.

   Consult a lawyer to make sure you aren’t missing anything, but you’ll generally want to include the scope of the project, the pay rate, and any stipulations for the company or contractor’s ability to end the project, refuse to pay for unfinished/poor work, or similar situations.

4. File a 1099-MISC. If you pay your contract employee $600 or more throughout the year, you have to file a 1099-MISC with the IRS and give a copy to the 1099 employee. You’ll do this at the end of each calendar year so the independent contractor can use it to file their taxes.

Benefits and Challenges of Hiring 1099 Employees

As with any business decision, there are some upsides and downsides to hiring 1099 employees. First, the upsides:

1. It’s cheaper. Companies don’t have to pay for benefits, overtime pay, or workers’ compensation when they hire 1099 employees. In addition, if you only have a specific project that needs to be done every once in a while, hiring a 1099 employee is usually far cheaper than hiring, training, and paying a full-time employee.

2. It gives companies more choice in who completes the project. Companies can choose to rehire a 1099 employee for another project in the future, or they can choose to go with someone else. This can result in a higher quality of work than it would if they hired a full-time employee that ended up not being entirely satisfactory.

There are other pros to hiring 1099 employees too, but these are the main ones. There are some downsides to this practice, too, however:

1. You don’t get to train them. One of the characteristics of a 1099 employee is that you, as the employer, don’t get to train them on how exactly you’d like the project done.

   You can explain what you want the end product to be, but you don’t get to put them through company training or anything like that. This isn’t necessarily a problem, but it can be frustrating to some organizations who want or need a project done a certain way.

2. It can create legal pitfalls for the company. To save money, some companies blur the lines between their full-time and 1099 employees, which creates all kinds of negative legal ramifications.

   While it’s certainly possible to avoid these pitfalls, hiring 1099 employees does introduce another level of complexity for your business’s taxes, so be sure you and your accounting department understand what you need to do to remain compliant with the IRS.

1099 Employee FAQ

1. Does 1099 mean self-employed?

   Yes, 1099 does mean self-employed. When it comes time for employees to file taxes, they do so on either a 1099 or W-2 form: 1099 if they’re self-employed and W-2 if they’re employed by a company full-time.

   Those with W-2 forms usually have their taxes withheld from each paycheck by their employer, while those with 1099 forms have to pay their own taxes. Companies have to file 1099 or W-2 forms on behalf of their employees and independent contractors as well, so employers need to understand the difference between the two.

2. Why would an employee want to be 1099?

   An employee would want to be 1099 because it gives them more flexibility and better pay for the same work. Because companies can’t tell their 1099 employees how or when to do their work, these workers can choose their hours, holidays, and work locations as long as they complete the projects they agreed to do on time.

   Depending on the type of work a 1099 employee does, they can also often take on multiple clients or projects at the same time, allowing them to adjust their workload as much as they’d like to.

   The other reason many employees want to be 1099 is that they can earn more for the same work. This is often true, but the larger take-home paycheck can be misleading since no taxes or benefits have been withheld.

   1099 employees still have to pay these themselves, so they don’t always end up earning as much extra money as they thought they would after it’s all said and done, but most still find they earn more for their time than they would as a W-2 employee.

3. How does a 1099 employee get paid?

   A 1099 employee gets paid by the hour or by the project. These are the two most common payment methods for 1099 employees, but the exact method will depend on the independent contractor and the type of work they’re hired for.

   When companies pay 1099 employees by the hour, they or the contractor can set the pay rate and either a minimum or a maximum number of hours the contractor will work in a given period.

   Some contractors like to be paid upfront for a set number of hours they’ll work per month, while others will submit invoices at the end of each month for the hours they worked.

   When companies pay by the project, some set the rate themselves, while others go by the contractor’s quoted price, depending on the industry.

Author

Caitlin Mazur

Caitlin Mazur is a freelance writer at Zippia where she has written 140+ articles that have reached over 1 mil viewers as of June 2023. Caitlin is passionate about helping Zippia’s readers land the jobs of their dreams by offering content that discusses job-seeking advice based on experience and extensive research.