Independent US-Based Contractor vs. Employee
Depending on applicable federal or state employment laws, different tests may apply to evaluate a worker's independent contractor status. Under most laws, one key difference between employees and independent contractors is the degree of control you have over the worker.
Generally speaking, a company that engages an independent contractor tells the worker what the scope of work is, but does not have control over how the contractor achieves the desired result.
However, there are many other factors that may be relevant to making a proper determination. Check out this page on the IRS website for more information about how the IRS analyzes the differences between employees and independent contractors. You can also find some helpful resources compiled by the federal Department of Labor that speaks on classifying workers under the Fair Labor Standards Act (FLSA).
Some state laws apply significantly more stringent "ABC tests" that make it more difficult for an employer to properly classify a worker as an independent contractor.
Example: Under California's "ABC test," a company must demonstrate that the worker meets all of the following conditions to properly classify them as an independent contractor:
- the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
- the worker performs work that is outside the usual course of the hiring entity’s business; and
- the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
How to Add a Contractor
To add a contractor, select ‘Contractors’ under ‘Manage’ and select Add.
This will redirect you to Justworks' Invitation Center where you can select Add Contractor.
You will need to add the contractor's information and an invite will be sent to the contractor to join Justworks.
Once the contractor has set up their account and entered all the necessary information, you can begin issuing payments to that individual.
Engaging a Former Contractor as an Employee
If a US-based contractor’s job functions change, that individual possibly may now be classified as an employee. You should consult an employment attorney about the circumstances of your particular situation, especially if you are concerned about how you classify workers in California or other states that apply the ABC test.
In order to hire a former contractor as an employee, you should terminate the contractor on the platform and then rehire the individual as an employee.
Terminating the contractor
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 Schedule termination, you are then able to go through the workflow to terminate the contractor.
Rehiring as an employee
In some cases, a former contractor may become an employee. It will be best to create a new account for this employee so that there are separate records for their time as a contractor and as an employee. If you are unsure whether a former contractor should be engaged as an employee, consult an employment attorney about the circumstances of your particular situation.
If the individual you wish to engage as an employee is not already terminated, you would need to first go through the workflow to terminate the individual as a contractor. Once the individual has been terminated as a contractor, you can then add them to your company as an employee following the instructions found on Adding People to Your Account.
Engaging a Former Employee as a Contractor
In some cases, a former employee may perform some work for you at a later date. If that work would qualify under applicable laws as that of an independent contractor, you may re-engage them as a contractor through Justworks. If you are unsure whether a former employee should be engaged as a contractor, consult an employment attorney about the circumstances of your particular situation.
If the individual you wish to engage as a contractor is not already terminated, you would need to first go through the workflow to terminate the individual as an employee. Once the individual has been terminated as an employee, you can then add them to your company as a contractor using the instructions found above under "How to Add a Contractor".
US-Based Contractors Paid at Least $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-NEC and/or a Form 1099-MISC depending on the type of payment they are issued. 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. Depending on what the payment is for, contractors may receive either a 1099-NEC or 1099-MISC or both. You can find more information on the differences between the two forms here.
How to Add Payments for US-Based Contractors Paid Outside of Justworks
If you’ve paid a US-based contractor 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 on the Settings tab in 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.