These individuals are self-employed and, unlike traditional employees, are not subject to tax or employment law in the same way. They are responsible for their own tax filings and are not eligible for benefits or protections typically provided to W-2 employees, such as minimum wage, overtime pay, or workers’ compensation. Companies benefit from the flexibility of hiring 1099 employees but must be careful not to misclassify workers, which can lead to legal complications.
Practical Example of a 1099 Employee:
A graphic design firm may contract a 1099 employee to complete a three-month project designing a series of promotional materials. The designer would use their own equipment, set their own hours, and invoice the firm upon project completion.