All You Need to Know About 1099 Employee Rights
There is no such thing as a 1099 employee! Surprised?
Any worker who is eligible for 1099 is actually an Independent Contractor and never an employee. However, for ease of understanding, most people apply the term 1099 Employee to independent contractors and workers.
Otherwise called an independent contractor; a 1099 worker typically offers particular services as delineated by a written agreement. While some 1099 employees merely undertake a project at a time, most serve numerous clients, offering various services within their proficiency.
Firms and businesses engage 1099 workers for a defined period as per the outlined conditions in the contract. Nevertheless, the contract may be renewed numerous times as both parties deem it mutually beneficial.
Due to the complexity of employment classification, misclassifications can at times occur at the workplace. That’s why both employee and employer must recognize 1099 employee rights to ensure adherence to rules and regulations. Here's a look at some 1099 employee rights.
Definition of a 1099 employee
The term originates from the 1099 tax form (usually the 1099-MISC or 1099-NEC), that employers have to fill out. Every company has two kinds of hires: employees under employer management and external hires where employers are considered clients with minimal authority over contractors.
In the case of external hires, clients pay for the job only without the benefits and deductions. Also called an independent contractor or freelancer, this employee doesn't fall under typical employment categorization rules. 1099 employees undertake certain types of jobs over others. However, with extensive digitalization, many jobs now fall under the purview of freelance or contracts. Some of the professions that commonly often fall under this categorization include web designers and content writers.
1099 employee legal rights: What you should know
A major advantage of working as a 1099 employee is the independence it affords. As a 1099 employee, your client has no degree of control for your project or working hours. Moreover, you're in charge of project implementation, service rates, where you work, and subcontracting techniques.
In some instances, you might even have property rights to the work you've produced except under certain circumstances. Your employer can maintain property rights to your work if you signed a written contract stating that you completed the work for hire, so make sure you read your contract agreement thoroughly to avoid relinquishing intellectual property rights.
Right to work at your convenience — time and place
Independent contractors have the freedom to work from a convenient place and whenever they deem convenient. The exception applies in instances where a client expects you to be onsite during a specific project. This implies that you're responsible for providing the necessary tools or equipment for the project. Beware that independent contractor services are those that a client can't typically accomplish with internal workers. In this case, they'll engage you to accomplish work that isn't part of their ordinary business activity. If you find yourself accomplishing similar tasks as a W-2 worker, this could be a misclassification. The U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS) may still qualify you as an employee simply based on the nature of your work. California uses the "ABC Test" to determine if a worker is misclassified.
We recommend you consult with an accountant, employment attorney, or law firm to confirm that your employment relationships or employment status are in compliance with the law.
The right to an agreement or contract
An agreement denotes an important legal component that establishes a client-consultant relationship. You must ensure a signed agreement is in place before you begin work. While a contractor lacks numerous facilities that are afforded to employees, he or she can develop a contract that stipulates payment, including the amount and the payment timeline as well as the termination conditions and particulars surrounding the job they're being contracted for.
The independent contractor agreement must delineate the freelancers' duties as that of a 1099 employee, not a staff member. If either party violates the contract, both parties have the right to seek legal action.
If your contract doesn't include the termination conditions, your client could end the agreement without notice. To guard your rights, you must discuss the termination procedure before embarking on a project and incorporate it in a written contract.
The agreement should outline the reasons for possible contract termination, the period for notification, and reimbursement if any for early termination. Once you sign a contract or agreement, you can file a claim if a violation occurs.
Right to remuneration
Classifying full-time employees as independent contractors without a reasonable basis could land employers in considerable legal trouble. Therefore, employers must establish the appropriate employee status.
The IRS has rules for classifying full-time workers versus independent contractors. Therefore, a business proprietor should review the guidelines to determine the right classification. Every client is liable to pay all employees, whether full-time or on contract. Contractors can settle for an hourly or fixed rate, but a written agreement must be in place to this effect.
The right to advertise your services
For a contractor, having several clients at the same time increases the likelihood of securing a higher profit. As a contractor, you can promote and sell your services to other businesses. After all, you aren't legally bound to work with a single client at a time.
Even if you have a current agreement with a specific client, you have the right to undertake other projects. It's equally within your right to collaborate with other contractors to implement particular tasks on a project or even the whole project.
The right to manage your business
Contractors typically manage their businesses. That is, they run all facets of their business and are responsible for securing their profit. In this case, clients aren't responsible for offering standard employee benefits such as pension plans, paid vacations, or health insurance.
Furthermore, you implement your rights as a business owner. For instance, if you don't receive payment for work completed, you can take legal action for contract violation.
The right to decision making
While full-time employees follow directions from their managers or bosses, contractors are their own bosses. Consequently, independent contractors have the freedom to decide on various facets of the project as long as it does not affect the completion of the project in the stipulated time.
As a contractor, your clients don't direct your project. If this happens, it means you're no longer a contractor but an employee instead. Although clients hire contractors for project completion, the latter determine how to carry out the project.
The right to engage other contractors
At times, a contractor might engage fellow contractors to execute some of the tasks. When a client engages your services, you can sub-contract some of the tasks and invoice other freelancers. Collaborating with other contractors is well within the bandwidth of a contractual agreement, so ensure your agreement incorporates the freedom to engage others to help with project completion.
Throughout initial discussions, you should inform your client concerning your intention to use extra resources if required to complete the task and integrate this information into your agreement.
1099 employee rights don't cover the hours worked unless stipulated in the agreement. Remember, it might be necessary to put in additional time to deliver timely results. As a contractor, you're responsible for completing your tasks on schedule. If you have workers, you might need to consult the laws locally because they'll be entitled to overtime.
Rights that don't apply to self-employed independent contractors
Although 1099 workers have many legal rights, there are some that do not apply to them. Let's talk about the rights freelancers do not qualify for.
Business owners don't deduct payroll taxes from the money paid to a contractor. In this case, a freelancer is responsible for paying and tracking the contractor taxes owed to federal and state governments. A business hiring a contractor does not need to make contributions for Medicare taxes and Social Security. Rather, a contractor is solely responsible for self-employment taxes as they are their own business.
Overtime pay and minimum wage
Full-time employees are required by Federal Law to be paid a minimum wage and overtime pay in every state. Contractors are not entitled to receive overtime pay and minimum wage. Instead, a contractor's rate is determined before the commencement of any project. There are no hour laws for freelancers. If a contractor works over 40 hours weekly, that's the contractor's concern rather than that of the business owner.
Worker's compensation and unemployment Benefits
Employers don't need to pay compensation benefits to contractors who sustain injuries or sick days. In numerous states. However, contractors can make separate payments into a state compensation fund.
Independent contractors also do not typically qualify for unemployment.
To sum up, a 1099 worker is an independent contractor. While labor laws direct employer-employee relationships, when it comes to contractors the most significant document is the signed contract, which sets the expectations and requirements of both parties. Beyond that, this document also protects the long-term interests of an independent worker, making the agreement legally enforceable.
Don't begin any job without a contract, if you want to protect your 1099 employee rights as an independent contractor. If you have any questions about your legal rights, talk to an attorney for legal advice.
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At Keeper Tax, we’re on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please email firstname.lastname@example.org if you have questions.