1099 or W2? how do I know which one my worker is?

Contractor or W2 employee?

How do I (as an employer) know if my worker is a 1099 contractor or a W2 employee? 

There is a lot of gray area here! If it was easy, this wouldn’t be asked so often.

I think there are two questions baked in here: 

1) is it more advantageous to me/my business to hire someone as a W2 employee or contractor;  

and

2) do I have discretion to choose which my hire will be. 

For 1), the easy answer is: contractor. It’s easier and cheaper. There are pros and cons for hiring either W2 employees or 1099 contractors, but generally, contractors are easier and cheaper. So why would anyone hire someone as a W2? This is the answer to the second question. Depending on the job/work being done, you do NOT have discretion to choose. In some cases, you can design a job to be done by a 1099 contractor, but some jobs will always have to be done by a W2 employee.

The IRS has guidelines on what workers are considered contractors and which are considered W2 employees. The biggest consideration is: how much control does the employer exert over the work that the worker does? 

If you want your worker to perform work your way, that's a W2 employee. If you can simply hand over a project and say, “I don’t care how you do it, this is the end deliverable I want from you,” that’s a contractor. If you want someone to be available to you during certain hours and days, that’s a W2 employee. If you don’t care when the worker does the work, be it nights and weekends or whenever, that’s a contractor. If you have to teach the worker how to do what they’re doing, that sounds like a W2 employee. Different states have some different regulations that show up here too: in California, if you have someone working in the core area of your business (for example, if you’re an ad agency and the worker is creating content, or if you’re a bookkeeping company and the worker is doing bookkeeping) that’s a W2 employee. Does your worker have their own employees and provide things like workers comp to those employees? That sounds like a contractor. 

If you can’t figure out whether your hire is a W2 employee or 1099 contractor, talk through it with your finance person or your lawyer.