Employee vs Independent Contractor in the US

In the US, deciding whether a worker is an employee (“W-2”) or independent contractor (“IC”, or sometimes called “1099”, “corp-to-corp”, or “C2C”) is the staffing agency's responsibility, not the client or the candidate. If using an EOR/AOR like Ascen, the classification responsibility falls on the EOR/AOR, as does the risk of getting it wrong.

Unlike other countries, there is no bright-line rule for determining if someone can be classified as an independent contractor. On a federal level, the IRS has its own rules, as does the Department of Labor. The states each have their own rules as well. Some states, like California, are very strictly on classifying workers as independent contractors and you should consider them default to be W-2 employees, unless it’s very clear they are independent contractors.

 As a staffing agency using an EOR/AOR like Ascen, you can rely on the classification experience of your EOR provider. There are too many federal and state laws for your team to grasp all of them. However, it’s important that your team understands the basics so you can keep expectations in line for both candidates and clients.

Rules of Thumb

 Here are some general guidelines for checking if someone qualifies as an independent contractor.

     ●        Look for indicia of a standalone business

                       ○        Has an entity

                       ○        Has a business website and email

                       ○        Works with multiple clients

                       ○        Holds business insurance

                       ○        Takes business risk, can subcontract, or has employees

                       ○        Not performing the same business as the client

     ●        Look for aspects of control

                       ○        Works primarily remotely

                       ○        Sets own schedule, using own equipment

                       ○        Responsible for results only, not how work is done

                       ○        Short-term work, highly skilled (and highly paid)

                       ○        Not treated like an internal member of the client team

Roles to Watch Out For

The role itself sometimes provides evidence of the correct classification. Here are some examples:

Product Manager for SaaS Company

o  Duties

• 12-month assignment
• Manage product development for core client product
• Manage internal team members
• Meet on daily calls
• Use company computer and training
• Work on on-site

o  Classification

• This person is almost certainly a W-2 Employee since they are working like an internal team member.

ERP Integration Consultant for Shoe Company

o  Duties

• 3-month assignment
• ERP implementation for new accounting software, not client product
• Work remotely with no set hours
• Attend progress check-in once per month
• Can subcontract work to others

o  Classification

• This person is potentially an independent contractor since the job involves implementing something non-core for the company for a short period, and they have very specialized skills. 

Misconceptions on Entities (Corp-to-Corp/C2C)

There are some common misconceptions that everyone with an entity (e.g., LLC) can be classified as an Independent Contractor since the assignment is “Corp-to-Corp.” Unfortunately, that’s wrong, and the sum of the facts determines the classification. Having an entity is a big factor but not the only factor determining classification. As a staffing agency, you should look at the above guidelines and understand that sometimes an assignment must be W-2 based on federal and state laws.