Independent contractor vs. employee
While independent contractors and employees may both perform work for your business, one key difference is the amount of control you have over the worker. Generally speaking, a company that contracts with an independent contractor tells the worker what the scope of work is, but does not have any control over how the contractor achieves the desired result. For example, if a worker uses their own materials and has unreimbursed expenses, this may tend to show that the worker is an independent contractor rather than an employee. Whether someone is an independent contractor or an employee can be a fact intensive inquiry, and Justworks will not make that determination for you.
Check out this page on the IRS website for more information about the differences.
Knowing how to classify workers is important. If you misclassify an employee as a contractor. your company could be liable for employment taxes, back pay, fines and other penalties from both the federal government and one or more state agencies. Consult an attorney about the circumstances of your particular situation.
If a worker’s job functions change, and as a result, the worker who was once a contractor may now be properly classified as an employee. With Justworks, it's easy to make this change in our system.
Converting a contractor to a full-time employee
From the contractor's profile, click the blue pencil next to "Employment". Next, you'll click "Edit employment and compensation" and change Type from "Contractor/Consultant" to either "Full-Time Employee" or "Part-Time Employee", whichever is appropriate. Also, be sure to change Pay Basis as well to either "Salary" or "Hourly" and enter the new Pay Rate.
If your new employee is salaried, you should review their upcoming pay to make sure it's correct. You can change any incorrect amounts by clicking the Override box and entering the correct amount.
Your employee will automatically be prompted to complete Form I-9 the next time that they sign into Justworks.
Contractors paid over $600 in a calendar year will receive a 1099
Justworks tracks how much your contractors are paid each calendar year through our system and will send your contractors a Form 1099-MISC form if they are paid $600 or more. In addition, we will electronically report these earnings to the IRS.
This service, along with processing unlimited payments to contractors, is included free of charge with any Justworks account.
How to add payments for contractors paid outside of Justworks
In the Contractor's profile, navigate to "Settings" on the bottom left side of the page. Here, you'll see a tile labeled "Contractor Settings" with an edit button on the right side. By clicking "edit," you'll be able to enter and adjust the prepaid amount for the current year. This will be included on the contractor’s Form 1099. Please note, this is only applicable for contractors and NOT employees.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.