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I often see jobs posted on LinkedIn stating that the position is X duration in length, pays X per hour, and per diem is paid for days worked. Further, the description states that “this is a 1099 position”.
What does this mean? To me, it means steer clear and run away.
Companies that try to employ people in this manner should be reported and fined for illegal business practices…I know that’s a strong opinion, but my assessment is correct.
The only time that a “1099” works is if you hire an independent contractor to perform work that you, as an employer, do not manage or direct. In addition, the independent contractor must be licensed to work, possess a valid and current federal tax ID number, and should be properly insured to perform the work that they are performing.
So why would an employer attempt to hire employees as 1099 contractors? The answer is simple: they don’t want to report or pay any of the taxes or fees associated with employment, including, but not limited to, federal and state unemployment insurance, workers’ compensation insurance, social security, Medicare, medical/dental/vision insurance, and other employee benefits. Also, since they do not have these “indirect” payroll costs, they know their true cost of business, making it easier to predict their profitability if they mark up the pay rate to their client.
In my strong opinion, companies that do this are sneaky and, in some ways, downright stupid. Suppose the worker is hurt on the job. In that case, they can sue the employer since the employer does not have an exclusive liability relationship and does not pay workers’ compensation insurance premiums.
Competing with companies that operate this way is tough and unfair. Sometimes, our clients care, and others don’t.
I suggest you avoid working with companies who do this as it is not in your best interest. Unless you do freelance work or are a real estate agent, this is likely not a good model for you. Also, according to the IRS, in most cases, it is not legal, and the rules for 1099 contractors include – that 1099 employees are responsible for paying their own self-employment taxes, as well as income taxes. 1099 employees are not to have any taxes withheld from their paychecks. 1099 employees must have their own business insurance, such as liability insurance.
