04/26/2024
1099 vs W2 Are you classifying your providers the right way?
If you are like most Aesthetic practices, the costs of hiring a new provider can causes stress. Do we have have enough money, how much will it costs us, what are payroll taxes, and how much will it cost? These are very real concerns and the thought of bringing on a new provider as a 1099 is a real advantage but is it the right decision?
Before you make the decision to hire a provider as a 1099 lets take a look at what the IRS has to say about it.
The courts have considered many facts in deciding whether a worker is an independent contractor or an employee. There are 3 main categories the dictate how the worker should be classified.
1. Behavioral Control: A worker is an employee when the business has the right to direct and control the worker. If the practice has extensive instructions how a treatment should be performed then the worker is likely a w2. Instructions are things like:
- How, when, or where to do the work
- What products or equipment to use
- What assistants to hire to help with the work
- Where to purchase supplies and services
If the practice provides a worker with training about required procedures and methods this indicates the worker would be a W2 because the practice has indicated it wants the work done a certain way.
2. Financial Control:
- Significant Investment: If a worker is not required to pay a significant amount of money to procure as supply their own equipment, products, ect they are likely a W2 employee not a 1099 contractor.
- Expenses: A worker that has no costs associated with performing their work due to everything being supplied by the employer is likely not a 1099 employee.
- Opportunity for Profit or Loss: if there is a way to profit or take a loss in pay as a worker then the worker is likely a 1099.
3. Relationship of the Parties:
- Employee Benefits: If you provide benefits the employee is likely a W2. If you do not provide benefits then the other 2 areas above will dictate the classification of the worker.
- Written Contracts: A written contract is not a good way to ensure the proper classification of a worker. Just because a practice says a worker is a 1099 and there is a contract in place does not absolve the employer from risk. Workers who feel they have been classified incorrectly can file Form 9819 uncollected social security and Medicare tax on wages form and the practice will likely be investigated for compliance.
If a practice has mis classified a worker they can participate in an optional voluntary classification settlement program that helps the practice not be financially penalized for the entire amount of taxes that are owed as the result of misclassifying a worker.
* References:
- https://www.irs.gov/newsroom/worker-classification-101-employee-or-independent-contractor
-https://www.irs.gov/pub/irs-pdf/p1779.pdf
