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More Information on 1099s vs. Employees

More Information on ‘contract employees’…

In the event you are currently being supplied with staff from other sources, it is important that you clearly understand the following: you must treat those individuals as an employee from day one. This means complying with all laws and regulations that apply to an employer/employee relationship including all payroll taxes and withholdings. There is no “Under $600 Exemption” as that only applies to valid independent contractors.

Consequences of Treating an Employee as an Independent Contractor: Federal law is very clear on when you may classify workers as independent contractors instead of employees. Note the “Services Provided as Key Activity of the Business” clause: if a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities. This would indicate an employer-employee relationship. Initial documentation requirements: Treating a temp as an employee means the facility must have the temp fill out an I-9 form and provide the appropriate documentation that the person is eligible to work in the United States (such as a driver’s license AND a social security card). Additionally, they must have the temp fill out a W4 form so the temp can be added to their payroll with the correct withholdings. Clearly, this is a large burden to the facility, especially for short assignments.

Employer tax burden: Beyond the initial paperwork required to “hire” a temp, the facility is required to withhold the temp’s federal and state income tax along with federal and state unemployment. The facility must also pay the employer portion of these taxes.

Workers’ compensation: Another problem with treating a temp as an employee is the risk incurred. Facilities are required to report temps who are treated as employees to their workers’ compensation provider, potentially raising the premium. Should there be a work related injury at or involving your facility the temp could submit a workers’ compensation claim, again potentially leading to increased premiums. Unemployment insurance: When a temporary assignment ends, the temp employee is entitled to file an unemployment claim. As that person’s employer, some portion of the unemployment income will come from the facility’s unemployment account. An employer’s unemployment insurance rate per employee is set based on unemployment claim activity.


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