When Can You 1099 an Employee?

The answer to, “when can you 1099 an employee,” is a complicated one. The differences between 1099 and W-2 workers aren’t always obvious, and new legislation is changing previous classification. In general, a 1099 worker provides a service for a limited period. A W-2 worker is a formal employee and on the company’s payroll. In general, 1099 workers are not entitled to most of the benefits and protections granted to employees, like minimum wage, unemployment insurance, paid family leave, or overtime pay. For more information about how to determine whether you need a 1099 or W-2, check out our guide. The IRS also has a helpful resource.


Recent Changes for When You Can 1099 an Employee

As more workers switch to contracted gig work, states are scrambling to generate legislation around when an employer should and should not designate an employee with a 1099 form. For example, recent California legislation is attempting to rewrite the rules of what it means to be an employee. Known technically as AB5, this legislation went into effect on January 1, 2020, as a way to strongarm companies like Lyft and Uber to treat their workforce more like employees than contractors.

AB5 dramatically changed the answer to the question, “when can you 1099 an employee.” In California, only those who meet the following requirements are classified as independent contractors.

  1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  2. The worker performs work that is outside the usual course of the hiring entity’s business.
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

These guidelines can be confusing to some California employers. If you have questions, we recommend skimming through AB5 for additional context, or perhaps talk to the leader of your local Small Business Association.


Upcoming Changes to When Can You 1099 an Employee

While California is currently the only state with this type of legislation, other states are on their way to creating similar laws. Early in 2020, New York began to consider a similar worker classification law. Even if you are an employer outside of California, you should begin to closely examine the relationship you have with your employees and independently contracted workers. Do they fit these criteria? If not, you might need to reclassify them when legislation eventually comes.



Here’s the good news: A filing software system, like the W-2/1099 filer provided by AMS, can significantly ease the paperwork burden associated with these types of filings. Soon, you won’t need to ask the question, “when can you 1099 an employee.” You’ll have your answer and the software support for the appropriate tax and wage paperwork.

Even if you don’t yet have to ask thee questions, invest in a W-2/1099 filer now. This is the best way to prepare for the coming changes. Plus, you’ll streamline your day-to-day accounting tasks in the process.

Software Solutions from AMS

Our W-2 and 1099 Forms Filer is our only required platform. From there, users pick the services they need. Choose from the tools below to build out your customized accounting software.