The IRS has very specific guidelines for classifying workers into employees or independent contractors. In general, the extent of employer control over the worker’s time, work methods and output determines if that person’s compensation should be reported on a Form W-2 or 1099-MISC.
The worker is a W2 employee under the following conditions:
- Work hours are set by the company and usually consist of a fixed schedule.
- Work process is defined by the company and training is provided to workers by the company.
- Workload is assigned by a supervisor and workers are required to meet set criteria for performance.
- Equipment, tools and supplies required to perform the tasks are provided by the company.
- Workers have a single employer.
The worker is an independent contractor under 1099-MISC definitions if the following conditions describe the work relationship with the client or payer:
- Work schedule is determined by the worker.
- Assignments are accepted on a case-by-case basis and worker can reject or opt out of assignments.
- Workers complete assignments using their own methods and work process.
- Tools, equipment and supplies are provided by the worker although the company may provide some training.
- Workers may provide their services to other clients.