What is W-2 vs. 1099?
W-2 and 1099 refer to the two primary US worker classifications: W-2 employees have income and payroll taxes withheld by their employer, while 1099 workers are independent contractors responsible for paying their own self-employment taxes.
Why does W-2 vs. 1099 matter?
Misclassifying a worker as a 1099 contractor when they should be a W-2 employee carries significant legal and financial risk, including back taxes, penalties, and potential lawsuits, making correct classification a critical compliance issue for staffing agencies and employers.
How does W-2 vs. 1099 work?
Classification depends on factors like the degree of control the company has over how and when the work is done, whether the worker uses their own equipment, and whether the relationship is ongoing or project-based, evaluated under IRS and, in some states, additional state-specific tests.
Frequently asked questions
Who decides whether a worker is W-2 or 1099?
The employer makes the initial classification decision, but it must follow IRS guidelines and applicable state tests; misclassification can be challenged and corrected by the IRS or state agencies.
Can a staffing agency place the same worker as both W-2 and 1099 over time?
In some cases, though each engagement should be evaluated independently against classification criteria rather than assumed based on past assignments.
How BrightMove helps
BrightMove’s Back Office module tracks worker classification alongside billing, helping agencies keep W-2 and 1099 placements straight. See BrightMove’s Back Office billing and invoicing.