Transitioning from 1099 to Employee – Employer Checklist
Do you have a worker that has been a 1099 to date but it’s now time to classify them as a W2 employee? In an ideal world, this would happen right around the end of the year so that the switch could be made on the 1st of the year, simplifying your business’s and employee’s taxes.
But, sometimes the switch needs to occur prior to that; misclassification is punishable by tax penalties so it is not recommended that you delay the transition to W2 employment if it is in fact necessary.
The misclassification of employees as independent contractors presents a serious problem for affected employees,employers, and the entire economy. The Department of Labor has countless initiatives in place to identify misclassifications and get workers the benefits they are entitled to such as family and medical leave, overtime, minimum wage and unemployment insurance.
When you employ a 1099 worker, the only forms necessary for the worker to complete each year is a W9, which is a request for the taxpayer identification number and certification. The worker is responsible for paying their own taxes as an independent contractor.
When the worker becomes an employee, much more responsibility falls on you as the employer. Below is a “hiring” checklist for transitioning into a W2 position. We strongly recommend consulting with a professional such as Employer Solutions Plus that can assist you in any of the areas below; each has its own complexities. Essentially, switching a 1099 worker to a W-2 employee should be handled just like a new hire would be.
- Form W-4 for Federal Income Tax Withholding
- State Income Tax Withholding Form
- Form I-9
- E-Verify (Even if your worker has already worked with you as a 1099, E-Verify is very important. It confirms the eligibility of the employee to work in the U.S.)
- Register with State Employment Notification System
- Review and Issue Employee Handbook (This helps ensure compliance)
- Enroll in Benefits
It is also recommended that you consider the assistance of a payroll service provider if you are not using one already. A payroll service provider will handle all of the above-mentioned forms and verification processes for you, and help streamline your payroll each month.
For more information on hiring or transitioning an employee from 1099 to W2, contact our team.