W-2 Employee or Independent Contractor? What to Know About Classifying Workers

PeopleReady answers some of the most common questions that today’s businesses may have about the classification of workers as W-2 employees or independent contractors.

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What’s the Difference Between Employees and Independent Contractors?

As employee laws differ between states and frequently change, it is critical that employers correctly determine whether the members of their workforce are employees or independent contractors. Knowing the specific requirements for each designation is important if you want to avoid IRS penalties or any tax concerns and other costs stemming from violating employment laws. 

Misclassification occurs if any employer treats workers as “independent contractors” when they are employees.​ Misclassifying a worker can be costly, resulting in back wages owed and other financial penalties imposed. To help you understand the difference, PeopleReady has created a comparison guide to show the major distinctions between employees and independent contractors.

Employees

Form: Employees receive a W-2 form.

Taxes: Payroll taxes (including Social Security and Medicare) are automatically deducted from a worker’s paycheck and are then sent to the government by the employer.

Pay: W-2 employees receive a regular wage and employee benefits and are guaranteed minimum wage.

Type of work: A W-2 employee works for a company according to the business’s needs and schedule.  

Management: The employer has a significant degree of control over the employee’s work.

Termination: In most cases, a company can let an employee go for poor performance or any other valid, non-discriminatory reason.

Tools and supplies: Necessary materials and tools are often provided by the company for W-2 employees to perform their work.

Benefits: Benefits like health insurance, retirement contributions, and flexible spending accounts are available to all qualifying employees.

1099 Independent Contractors

Form: Independent contractors are self-employed and receive a 1099 form.

Taxes: Independent contractors are responsible for calculating and withholding their payroll taxes, then paying the government directly.

Pay: Independent contractors earn their compensation according to the terms of their contract and receive a 1099 form to report income on their tax return. Independent contractors also assume the risk for  profit and loss when they carry out their jobs.

Type of work: Independent contractors generally provide specific services as defined by a written contract. Some independent contractors only work on one project at a time, but many serve multiple clients.

Management: Independent contractors determine their schedules and working hours. They also define how and where they work as well as which tools and methods they use to complete their work.

Termination: Businesses engage independent contractors for a defined period, per the conditions outlined in their contract with the independent contractor. That engagement may be renewed so long as both parties agree.

Tools and supplies: Independent contractors are often responsible for supplying their own tools and materials to complete their work.

Benefits: Independent contractors typically do not receive benefits from the businesses they perform work for. For example, these benefits may include paid time off, sick leave and health and retirement benefits.

For further information on worker classification, visit the IRS website.  Additional information is also available from the U.S. Department of Labor.

HOW TEMP STAFFING COMPANIES CAN SUPPORT YOUR COMPANY WITH WORKFORCE SOLUTIONS

With support from a staffing agency like PeopleReady, you can worry less about your recruiting efforts and focus on serving your customers and growing your overall business. PeopleReady provides W-2 workers for your temporary staffing needs and performs a variety of duties for you. For example:

  • We are responsible for payroll taxes and other documentation.
  • We ensure temporary workers are committed to the job because they’re vetted beforehand.
  • We allow you more time to focus on business matters such as customer service and sales efforts.

When you find workers with us at PeopleReady, you can be confident in the temporary staffing services that you receive from our team of staffing experts. We have a local presence in 600-plus markets throughout North America to provide staffing support across a variety of industries. And unlike most temp staffing agencies, you also have immediate access to cutting-edge technology that supports your staffing needs. Our app, JobStack, allows you to find vetted workers in your local area, 24/7.

Looking to hire workers for your company?

PeopleReady, a TrueBlue company, specializes in quick and reliable on-demand labor and highly skilled workers. PeopleReady supports a wide range of blue-collar industries, including construction, manufacturing and logistics, waste and recycling, and hospitality. Leveraging its game-changing JobStack platform and 600-plus branch offices across all 50 states, Puerto Rico and Canada, PeopleReady served approximately 94,000 businesses and put approximately 220,000 people to work in 2021.