1099 Worker Rights

1099 Worker Rights differ from Employees

Independent contractors and employees, sometimes referred to 1099 and W-2 workers respectively based on the form employers use to report earnings to the IRS, are distinctly different types of workers. They may perform the same work, share many of the same responsibilities, and be otherwise hard to differentiate by a casual observer. However, from a legal perspective, they are quite distinct. Whether or not a worker is an employee or an independent contractor is not a matter of convenience, opinion or choice. It is a legal issue. Consequently, it would be a mistake – an invitation to incur significant penalties and fines – to classify workers or to choose a classification for oneself based on perceived benefits. Employees are economically dependent on their employer. 1099 workers, on the other hand, are economically independent of any employer. 1099 worker rights flow directly from this distinction.

Previously we defined independent contractors as not employees. Employees, due to the reality of their economic dependence on the employer, have certain legal rights including

  • Minimum wage from qualified employers;
  • Unemployment insurance, the “premiums” of which are paid for by the employer;
  • Worker’s compensation coverage, again, paid for by the employer; and
  • 50% of the total Social Security and Medicare tax liability paid by the employer.

While not considered employee rights per se, employers often provide benefits and perks to employees including paid time off, health insurance plans, and so forth.

1099 Worker Rights flow from Independent Status

1099 workers, because they are not employees, are not entitled to the rights of W-2 workers. However, they do have certain rights which, to which employees are excluded, based on their independent status.

1099 worker rights include, but are not limited to:

  • Work for whomever they choose, including direct competitors so long as the worker does not violate any contractual agreement with either employer such as a non-disclosure or a non-compete clause.
  • Determine how they get their assigned work completed. This flows from the defining independent worker concept that the contractor bears the risk of profit or loss. Thus, if the independent worker can find a more efficient way to achieve the stipulated result, he or she may freely pursue that method.
  • To pursue one’s own economic development rather than the economic development of another entity. Independent contractors – whether you call them freelancers, 1099 workers, contingent workers, gig-hoppers, or equivalent term – are in business for themselves. Their primary product – the services they provide – is sold for the highest price which can be negotiated, and delivered at the lowest costs to the contractor possible. Included in this is the corollary right to negotiate terms of payment, what constitutes a completed project, and so forth. Employees, by contrast, work for the economic benefit of the employer and, ultimately, for the interest of the business owner(s).

Worrying about 1099 compliance?

Worrying about 1099 compliance?

Shortlist helps to mitigate your compliance risk exposure

Furthermore, where the employee is limited to a pre-defined set of benefits – if any are offered – the 1099 worker rights include

  • Establishing one’s own benefits package;
  • Determining the length and frequency of vacations or other time off;
  • Self-determining the level of investment to make in alternatives to worker’s compensation and unemployment insurance; and
  • Discovering the incredible number of legitimate tax deductions and other benefits provided by the government to support entrepreneurs.

1099 workers are not employees by definition. Thus, by definition, they cannot partake in the same legally protected rights and employer-provided benefits as W-2 workers. However, make no mistake – independent contractors have their own set of worker rights and benefits which, for the right person, can be very attractive, indeed.