Human Resource Blog

1099 vs w-2

what are the consequences if the employer hires an individual who works 40 hrs a week as a 1099 employee rather than a w-2 employee?

The consequences can be very severe for an employer who misclassifies a worker as an independent contractor (1099 worker) rather than a W-2 employee. Many accountants will imply that this is the employers choice, but that is completely inaccurate.

When an employer controls when, where or how the employee works, that person is an employee, not an independent contractor under federal law. Employers must pay payroll tax and federal employment taxes for employees. In addition, employees are entitled to overtime, while 1099 workers are not. Very simply, when an employer  misclassifies an employee as an independent contractor, the employer is conspiring to violate the federal minimum wage, overtime, social security and unemployment laws…among others.

In addition, various states have laws that prohibit misclassifying employees as independent contractors.

In this recent post on our sister site: http://blog.laborlawcenter.com/2009/10/23/new-massachusetts-independent-contractor-rules/  the employer had to pay over $100,000 to the employee in back wages and overtime — and the employee was permitted to keep the $65 per hour he was paid, even though it far exceeded the usual hourly rate for an employee.