What is a 1099 employee rule? Detailed Guide For Independent Contractors

June 9, 2021

1099 employee is a popular term that is used for independent contractors. It was derived from the tax form 1099. It is a form that every employee needs to fulfill. With the advent of the gig economy, freelance workers are also increasing with opportunities. The freelancers find this term interesting as it has a clear connection with them. Some companies hire two types of employees. One category is one in which an employee is hired in an organization along with all the packages and the benefits. Whereas the other ones are the freelancers who are only paid for the job they do and no additional perks are given to them. This difference between both the roles of employees is important with respect to the IRS. The authority taxes 1099 employees differently. Therefore, it is crucial to understand the role of 1099 employees for you in a comprehensive manner.

What is a 1099 Employee Rule?

1099 employees are called independent contractors 1099. Some of their other names are the sole proprietors, self-employed, and freelancers. It would not be wrong to say that these are the clients of the company. The reason is that these are the business owners who have their clients and they provide various services to them. 1099 employee rights should also be taken into consideration to provide them according to the regulatory obligations. These are actually managing a small business. They are paid only for what they have worked for. There is no tax deduction for them nor are they given any benefits.

1099 employees in GA, 1099 employees in California and all across the world are working as freelancers and are not given any benefits. For this reason, there are no tax deductions applicable for them. On the other hand, the 1099 employees do not enjoy an active workspace where they could work in a proper environment, there is no health insurance for 1099 employees, and they are also not given any perks that employees enjoy at the office. They are responsible for taking care of all their expenses. The Department of Labor also does not give any security on the employee wages or discrimination, etc. Sometimes there is also a PPP loan forgiveness for 1099 employees.

Common Types of 1099 Employees

1099 employees are not explicitly mentioned or discussed in any book or as a role. They just own their own small business and are paid for what they perform. However, there are a couple of jobs that are commonly done by the 1099 employees. For example, they include graphic designers, content writers, marketing specialists, photographers, painters, etc. They usually do project-based work. It also depends on the organization if they want to call an employee 1099 or not. For instance, it could be identified from the type of role given to them. The freelancers are not responsible for doing any core functions. The regular tasks and responsibilities are handled by the in-house employee whereas some tasks that are only project-based and not regular, will be done by 1099 employees.

Risks of Using a 1099 Employee

When it comes to taking services from a 1099 employee, there is a wide range of concerns that need to be taken into account. The company pays 1099 employees for the tasks they do. Where on one hand, there are various benefits of hiring a 1099 employee, on the other hand, there is a wide range of risks associated. These include:

Fines and Penalties:

Some 1099 employees are not aware of the regulatory compliance or the security requirements of your organization. Any discrepancy from their side could lead to harsh penalties and fines. 

Business Risks:

The independent contractors do not compensate you for any loss. In case of mistakes, the company will be liable for itself to cover it.


Make sure that the communications of independent contractors do not exceed the limit in your organization as it could be alarming for your company.

Common Mistakes with 1099 Employee

Some organizations repeat mistakes while working with 1099 employees. Extracted from the experience of many employers and organizations, below are some common mistakes due to 1099 employees

  1. Make sure to sign a contract or an agreement with the contractor to keep everything in control. Any mistake would make the employer questionable for the circumstances. 

  1. Make sure to take work from an employee that you asked and agreed with them. Do not take advantage of their availability and if you do, pay them for what they did.

  1. Industry norms are different and the independent contractors do not work on them. Therefore make sure to have a contract on what they would actually agree.

  1. Ensure to file the form 1099-MISC.

Steps to File a 1099 Employee

If you are taking services from a 1099 employee, it is crucial to follow the steps below to ensure a seamless journey.

  1. It is crucial to first make a written contract on which both the entities agree. 
  2. If you are paying an independent contractor more than $600 in a year, it is important to file a 1099-MISC. After it is done, send a copy to the 1099 employee.
  3. Take assistance from an employee classification or filing company that could help you ensure a hassle-free process and 1099 employees certified payroll.

1099 Vs W2

1099 employee vs W2, both are given the name after their respective forms. The organizations give the 1099-MISC form to the 1099 employees with whom they are supposed to run a contact-based project and a written agreement is signed between both of them. Whereas the W2 form is given to the regular/permanent employees that are supposed to work with them in an office on behalf of the firm’s employees.

However, both the 1099 employees and W2 provide services to the company but they vary with respect to the time each employee gives to the company and their agreements on project-based work/. The employees work irrespective of the number of projects that are given to them on a regular basis. Whereas the independent contractors only work on the project that is given to them. They do work as a freelancer and not even in the office. They are also not given any benefits from the company. The W2 workers have the right to be given all the benefits they were promised at the time of onboarding. 

Benefits You Can Offer 1099 Workers

Though an organization is not liable to give any benefits or perks to the 1099 employees, however, you can offer a number of benefits to them. These are:

Access to educational courses:

A freelancer might be looking for some kind of training sessions and certifications that could add value to their resume. The educational courses, seminars, or invitation to free classes can help them get knowledge of certain new subjects that could help them in their job.

Health insurance:

Organizations could offer health insurance or other medical benefits to the 1099 employees. The reason is that these employees find it hard to fulfill their medical expenses as compared to the standard employees. The company can also provide the group insurance plan to them. 

Travel Discounts:

When it comes to giving some benefits to the 1099 employees, corporate and travel discounts are also an option. It could also benefit the 1099 employees that have a residence in other cities and find it costly to give their travel expenses to meet you or conduct meetings.

Paid benefits:

Some food vouchers or meals, digital benefits programs, and others can also be offered to the 1099 employees. These plans are though paid by the employee instead of the employer that the plans can result in savings for the 1099 employee.


1099 employee is paid for the tailored services he provided to the company. Project-based work has its own pros and cons. There are several regulatory obligations that are taken into consideration for the well-being of these employees. There should have a streamlined workflow that could assist the employees and help them with a consistent career approach. The 1099 employees’ wages are based on the number and type of project they do.

Where on one hand, 1099 employees are not given any benefits that regular employees are given in a company such as health insurance, load, or any other perks, on the other hand, there is no tax-related restriction of liability for the 1099 employees. There will be no tax deduction from their salaries as they tend to work as independent contractors. It would not burden the freelancers and therefore, they could make their living seamlessly without any overhead. The contractor-based workers do not have a consistent source of earnings most of the time. Therefore, no strict restrictions are imposed on them. However, companies, if they want, can give perks and benefits to the 1099 employee on their own as a good gesture or maintain a working relationship for a long time.