If you’re deciding between different staffing providers, be sure to ask how they classify their workers.
If a worker is misclassified through a staffing agency, you and the agency may be liable for fines, back pay, and other penalties.
Understanding Worker Classification
A W-2 worker is a traditional employee, while a 1099 worker is an independent contractor or freelancer. This classification difference dictates who is obligated – the worker or the employer – to withhold taxes, pay for benefits, and control how and when work is performed.
W-2 Workers
- W-2 tax status
- What, when, and how tasks are completed determined by employer
- Follow specific hours/schedule set by employer
- Have taxes withheld by employer
- Covered by employer’s workers’ compensation and liability insurance policies
- Eligible for health insurance and other benefits through employer
- Eligible for sick time depending on applicable state and local laws
- Use company tools and processes
- Complete tasks within the company’s usual course of business
- Have a guaranteed minimum wage and overtime eligibility
1099 Contractors
- 1099 tax status
- Company tells contractor what tasks to complete but contractor has freedom to determine when and how the tasks are done
- Work when they want
- File and pay own quarterly income/payroll taxes
- Are not covered by company’s workers’ compensation and liability insurance policies
- Find own benefits and pays out-of-pocket for them
- Have no options for sick pay
- Provide own tools
- Have independent trade or expertise outside of company’s usual course of business
- Set their fee by project or hour
Why Classification Matters
If the federal government determines that someone who was classified as a 1099 worker should have been classified as a W-2 employee, there can be expensive consequences – both for you and the staffing agency. Under the federal “joint employer” rule, a company can be held responsible for misclassification, even if a worker is provided through a staffing agency. Whether you misclassify workers on your payroll, or a staffing provider is at fault, your organization may be at risk for penalties, claims, and bad publicity.
- Back taxes and penalties: Employers can be liable for unpaid federal and state income taxes, and Social Security, Medicare, and federal unemployment taxes (FUTA).
- Financial fines: Fines from agencies such as the IRS and the U.S. Department of Labor can be as much as 35% to 40% of the total amount paid to misclassified workers.
- Unpaid Wage Claims: Employers may have to pay workers for missed overtime, minimum wage, vacation time, and sick pay.
- Benefit liabilities: Your company could be required to pay for benefits such as health insurance, life insurance, disability insurance, and retirement plans.
- Reputational damage: Misclassification findings can lead to negative publicity or media reports.
How using W-2 talent makes your life easier
As an employer, hiring W-2 talent offers you more than access to the best workers.
More control and predictability
- Set defined work schedules
- Determine what tasks workers do at a given time
- Decide how workers execute tasks
Less liability
- W-2 workers don’t put you at risk of fines, claims, and reputational damage related to misclassifications.
Choose Employbridge as your W-2 staffing partner
We can help you build your workforce with temp, gig, contract-to-hire, and direct hire talent. Contact Employbridge today to learn how our comprehensive workforce staffing solutions can transform your recruitment and hiring processes, enabling you to find the right talent faster and drive your business forward.
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