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
You can find the contractor by logging into your Justworks account, and clicking on their name under Manage > Contractors. From the top of their profile, you’ll see the option to ‘Change Compensation.’
You’ll have the option to select the user type and pay rate / salary (if applicable) that you’re changing this individual to. Keep in mind what you enter here may have an impact on their benefits eligibility, depending on your company’s offerings.
At this time, you’ll have to enter in an exemption status for your employee. If you need to read up on exemption statuses and the Fair Labor Standards Act, you can visit the DOL website.
Next, you’ll choose an effective date of the switch.
Once you hit ‘Continue,’ you’ll be all set. Depending on the effective date you selected, payments may be prorated for this employee. You can check their Pay Schedule under their ‘View Payments’ tab to check.
This contractor will not have to set up an additional account. Instead, they will be able to keep their same username and login, even with their user type changing.
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.
You’ll also be able to add amounts that your company has paid outside of Justworks to a contractor’s profile, to ensure that the amount on their 1099 is correct.
How to add payments for contractors paid outside of Justworks
If you’ve paid contractors outside of Justworks, you can enter that value into their profile to make sure the amounts on their 1099 will be correct come tax filing time. You can do so from going to the Settings tab from the contractor’s profile:
From there, click the blue pencil from the Contractor Settings box. You’ll be able to enter the amount from the following screen.
That amount will be added to whatever amount you pay the contractor through Justworks on their 1099.
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.