By Debbie Fledderjohann, President of Top Echelon Contracting
When it comes to contracting with a school, you have two options. You can become a W-2 contractor, working through a contract staffing back-office, or you can be a 1099 independent contractor (IC). At first glance, the IC route may seem attractive, but there are serious drawbacks and risks that come with that classification. Before you select an option, it is critical you know the laws and understand the differences between the W-2 and 1099 classifications.
The difference between being a W-2 contractor and a 1099 IC boils down to how you are paid in conjunction with taxes and benefits. If you are classified as an IC, you are paid on a 1099. The school does not pay the employer share of FUTA, SUTA, or FICA (Social Security and Medicare) taxes. They are also not withholding federal income tax, state and local income tax, or FICA taxes from your paycheck. Obviously, this saves the school money, but it puts you on the hook for calculating and paying your own income taxes, plus you have to pay both the employee AND employer portions of FICA. If the school is paying you on a 1099, you do not have access to unemployment, Workers’ Compensation, or benefits like health, vision, dental, and life insurance or 401(k).
For various reasons, you and the school might find the 1099 IC to be the more attractive option. But the choice is not yours or the school’s. The Internal Revenue Service (IRS) guidelines determine how you are to be classified. The guidelines look at a number of factors to determine the extent of an organization’s right to direct and control a worker. The more right an organization has to direct and control a worker, the more likely it is that the worker should be paid on a W-2. The IRS has divided those factors into three categories: Behavioral Control, Financial Control, and Type of Relationship. These categories are explained in detail at http://www.irs.gov/
It is almost impossible for a therapist working full-time at a school to qualify as a 1099 IC because therapists have to work around a school schedule and are almost always under direct supervision.
Due to the loss of tax revenue to government agencies, IC misclassification audits have increased on both the federal and state levels over the past few years. There has been a lot of focus on how this affects organizations, but workers can also be subject to audits. If you are found to have been misclassified, you could be required to file amended tax returns and may owe additional taxes and penalties.
If you instead work as a W-2 contractor, you are the legal employee of a contract staffing back-office. The back-office pays all of the employer taxes. You receive a W-2 at the end of the year just as you would if you were a traditional employee. There are many advantages to being paid on a W-2:
- Receive a weekly paycheck with the option of direct deposit
- Have access to health, vision, dental, and life insurance
- Have access to a 401(k) plan
- Be eligible for unemployment benefits
- Be covered under the back-office’s Workers’ Compensation plan
- No quarterly tax filings
- Have half of the Social Security and Medicare Tax paid by the back-office
By working as an IC, you sacrifice these advantages that W-2 contractors enjoy. In addition, you could put the school district and yourself at legal and financial risk. Top Echelon Contracting has been placing therapists in schools for over 10 years, and less than 1% of the therapists qualify to be a 1099 IC according to IRS/Department of Labor standards. That’s why it’s important to think carefully and weigh all your options before you accept an offer to work as a 1099 IC for a school district.
About the Author: Debbie Fledderjohann
Debbie Fledderjohann is the President of Top Echelon Contracting, the recruiter’s back-office solution. Since 1992, Top Echelon Contracting has helped direct-hire recruiters successfully add contract staffing to their business model. They handle all the legal, financial and administrative responsibilities of a contract placement. Fledderjohann also writes a blog regarding all the critical issues for any back-office or legal employer.