While many employers use the term "1099 employee" as a means to distinguish independent contractors from the company's W-2 employees, no such term exists from a legal standpoint.
In fact, in addition to being inaccurate, this term is hazardous and could be costly for companies. A common mistake made by employers across the nation is misclassifying its workers as independent contractors as opposed to employees, and this issue is only exacerbated by erroneous terms such as "1099 employee." Though it may seem to many that calling workers "1099 employees" is merely a use of inexact terminology, it should be noted that this lack of precision could lead to pitfalls, such as failure to withhold and pay taxes, operating without proper insurance, and United States Department of Labor ("DOL") audits.
A "1099 employee" is a misnomer employers use to describe independent contractors. While the term has been coined by many and is commonly used by small business owners, the Internal Revenue Service ("IRS") generally refers to these workers as nonemployees. A 1099 refers to the tax form companies must provide to independent contractors for work performed throughout the year. Business taxpayers must report nonemployee compensation of $600 or more to the IRS using a Form 1099-NEC, Nonemployee Compensation.
Independent contractors are not protected by Equal Employment Opportunity laws, requirements to provide minimum wages and overtime pay,...
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