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Know These Facts before Hiring a 1099 Employee in the US

Posted by Shannon Dowdall

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Jan 14, 2019 9:00:00 AM

HKnow_These_Facts_before_Hiring_a_1099_Employee_in_the_USiring across international borders comes with its own unique set of challenges, as any hiring manager who has done it can attest. Differences in employment legislation can cause headaches in the hiring process. Even the differences in labour markets in different areas can prove challenging.

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For Canadian employers, hiring in the US can seem daunting. At first glance, hiring may not seem very different than it is here in Canada, but the regulations can vary widely from state to state. Even the federal definitions of different types of workers can vary from what’s familiar here in Canada.

You might be thinking about hiring what’s known as a 1099 employee for your American operations. If so, there are a few things you’ll want to know before bringing them on board.

A 1099 Employee Isn’t Really an Employee

In the United States, employee misclassification is a big concern. The IRS has a program dedicated to determining how a worker should be classified.

Worker classification determines an employer’s responsibility to them. Employees are entitled to certain benefits. And although they’re called “employees,” 1099 employees are actually contractors or freelancers.

Hiring a 1099 employee reduces the employer’s responsibilities to them. In most ways, it’s similar to hiring a vendor to deliver a service. You sign a contract with them, agreeing to pay them a certain amount for the services they deliver.

You Have Fewer Responsibilities

As mentioned, American employers have certain responsibilities towards their employees. Some of them will be familiar to Canadian business owners. For example, American business owners need to provide workers’ compensation and unemployment insurance for their employees. They’re also responsible for taxes.

When you hire a 1099 employee, however, you’re not responsible for these costs. You also aren’t expected to provide office space or equipment, as the contractor should supply their own. Finally, you don’t need to train them. The person you hire should already be competent. If they need more training, it’s at their discretion and cost.

You Also Have Less Control

When you hire an employee in the US, you’ll have control over many aspects of their job and how they perform it. For example, you can require them to be at work in your office between certain hours. You can also specify the equipment they’ll need to use, and you can provide it.

With a 1099 employee, you have much less control. The contractor can fulfill the terms of the contract the way they see fit. If you give them a deadline, they can work on the project when they have time, provided they meet the deadline.

There Are Penalties for Misclassification

As discussed above, there are concerns about employers misclassifying employees as contractors. The issue often stems from the concern that employers are purposefully misclassifying workers in order to reduce their responsibilities and save money.

The IRS uses a test to determine employee classification, which you should take advantage of.

There are penalties for misclassification, and some states levy their own fines as well.

Contractors Retain Rights to Intellectual Property

If you hire a contractor to produce work for you, they may still own their IP at the end of the day. Even if your contract specifies the work as being work-for-hire, the contractor might still have rights.

In order to qualify as work-for-hire, the work must meet three criteria. It must be specially commissioned, it must fall into one of several categories, and you and the contractor must agree to terms.

Working with a PEO Can Help

Hiring 1099 employees can be tricky for international companies. Working with a professional employer organization can help you navigate the nuances.

If you have more questions about how to hire the right people for your business, talk to a PEO today.


Topics: Compliance

Shannon Dowdall

Shannon Dowdall is a business development specialist at The Staffing Edge. She brings 10 years of extensive customer service and sales experience to her role. Shannon studied business marketing at Sheridan College and proceeded to work in the hustle of the fitness industry as a sales and marketing manager selling commercial fitness equipment. Passionate about sales and marketing and having grown up in the recruitment industry, the move to The Staffing Edge was a great fit. Shannon enjoys working with new potential members to help them discover how we can help put them on the path to prosperity and focus on the future, without all the worry that comes with owning a staffing company. In her free time, she enjoys being active outdoors by playing soccer, skiing and snowboarding, and hiking. The Staffing Edge works seamlessly with our members and Shannon makes sure all new members are equipped with the information and tools they need to move forward with a “business edge.”
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