1099 vs. W-2

Let’s face it. In today’s world many people would rather be an Independent Contractor (1099) rather than an Employee (W-2) of a company especially in the trade services. As an example, I have a client in the janitorial/mold remediation industry. Two years prior he began the process of attempting to convert his 1099 workers to W-2. Today, not one converted. They all wanted to stay as a 1099 for the freedom to freelance and obtain work out of different revenue streams. There are pros and cons of conducting business in a model like this but that is for an entirely different point in time.

The U.S Labor Department has an extensive 6-Part Test for classifying Employees vs. Independent Contractors.

Are you prepared to take this exam?

The most current and notable case is with Uber. Uber claims to have all Independent Contractors working for them while the state of California Labor Commission ruled they are in fact Employees.

Below are the 6 ways the U.S Labor Department will classify.

  1. Is the Work an Integral Part of the Employer’s Business?
  2. Does the Worker’s Managerial Skill Affect the Worker’s Opportunity for Profit or Loss?
  3. How Does the Worker’s Relative Investment Compare to the Employer’s Investment?
  4. Does the Work Performed Require Special Skill and Initiative?
  5. Is the Relationship between the Worker and the Employer Permanent or Indefinite?
  6. What is the Nature and Degree of the Employer’s Control?

How did you do? Would your Independent Contractors withstand this test or would they be converted to Employees?

What would the ramifications be if the Labor Department ruled not in your favor?

Quantify those costs…

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