1099 contract when I was told I'd be w2, how do I navigate this?

March 7, 2014 6:23 AM

On Tuesday I drove across country to start a new role in the Bay Area. Prior to this I was working on a year-long contract which wasn't renewed. During the interview process I was looking for a full time role, but was convinced that this was a good opportunity, particularly to get my foot in the door back in the Bay Area where I'm originally from and still have family. During the interview I was asked specifically what type of contracting I would be open to and said that I was only interested in W2ing to a new role rather than becoming an independent contractor and billing, and I stated that I wasn't interested in 1099ing. The rate I provided reflected this as well. Turns out I've been onboarded as a 1099 and the rate that I was looking for as a W2.

Upon further reflection, the company is interesting and while I'm not thrilled to be a 1099 contractor, I could at least consider it for the next half a year or so, perhaps longer, depending on how things go. I was and still am very excited to be back in the bay area and while I'm crashing on my dad's couch currently, have plans to have my girlfriend fly out soon and start apartment hunting as well. However I've never been a independent contract before and had no intention of starting. I did make this clear in the interview when asked, or at least I thought I did, but now having met my boss he's certainly the type of person who a) is a bit scatterbrained and I wouldn't be surprised if that fact wasn't retained and b) was a 1099 employee himself for many years and certainly doesn't seem opposed to that approach to employment and even wasn't sure that he had ever paid payroll taxes as a contractor.

A big concern is that I'm now losing an extra part of my pay check to payroll taxes and income taxes as well. My current rate is $50 an hour, which was what I was making before, but as a W2 employee through a contracting company. Now that I'm 1099 employee I'm making about 15k less than I thought I was which given my understanding of the Bay Area rental market isn't exactly thrilling.

I was noticeably a bit perturbed when this came to light and my new boss asked me if that was ok. I said that this was a fair bit of new information and I'd have to get back to him. My thought it to go in tomorrow, talk about getting on a W2 contracting agreement or that I'd have to raise my rate. This is only my third job since college though and I'm a bit nervous on how to approach this, if I should even try (and instead try and take the best of a bad situation and start looking again instead now that I'm actually in the area) and the language that's best used to approach this.

This was a very quick transition as well, I received the offer last Monday and was driving out that Friday to arrive this Monday, so given the very quick timeschedule and all the rest of the tight logistics I figured that the rest of the paperwork would have taken place on my first day. It didn't, but took some time to set up (through oDesk, which I had thought was going to be the company I was contracting through but turns out to be a way for freelancers to log their hours and get paid).

This is all made confusing to me as I was provided with a laptop, a company phone and a number of other services through this new company, facts which I thought indicated that at the very least I was somebody's employee.

Long story short, I'm less than thrilled, certainly it makes the offer to speak with my former boss who's now out here a fair bit more enticing.

New info too, in briefly discussing this with my father he said that he's been self employed most of his life and that 1099's actually pay less taxes like FICA and social security so I'm really not certain what's what right now. I had thought that 1099 was more expensive that way but maybe I'm wrong? Clearly I'm unprepared for this and that adds to my sense of unease.

posted by anonymous to Law & Government (32 answers total)

These people lied to you.

See if you can get them to resolve the problem. Whether or not they do find a new job as soon as possible and get out of there.
posted by rdr at 6:29 AM on March 7, 2014 [7 favorites]

You've just been given a massive pay cut and possibly a benefits cut.

Your new company misled you, either through malice or incompetence.

They may be violating labor laws by bringing you on with a 1099 for a role that should be filled by someone on a W2.

I'd call that unacceptable. You might consider going on a 1099 if they make you whole financially but you should really push to be on a W2.

Do you have a written offer letter from them or an e-mail trail? Either of those would be very helpful in arguing your case. This really is a bait and switch. There's no way your new boss could claim that this is no big deal.
posted by alms at 6:35 AM on March 7, 2014 [21 favorites]

I definitely agree with the above - I find it difficult to believe that this wasn't a deliberate deception. Do you have anything in writing confirming that you were being brought on as a W2 contractor?
posted by ClaireBear at 6:37 AM on March 7, 2014 [3 favorites]

I had thought that 1099 was more expensive that way but maybe I'm wrong? Clearly I'm unprepared for this and that adds to my sense of unease.

The big difference is that you will have to pay the employers portion (6.2%) of the social security tax (12.4%) and you will have to make withholding tax payments which is a bit of administration, but not a showstopper.

$53/hour would cover the SS. $55 to cover the administration.

But yeah, what others have said, you're dealing with unscrupulous people. Move on.
posted by three blind mice at 6:37 AM on March 7, 2014

What does your job offer say? If it says you're a full time employee, that would employ W2 - you really need to talk to a lawyer about this
posted by lpcxa0 at 6:38 AM on March 7, 2014 [1 favorite]

I am stuck in 1099 hell. Don't go there. I make less than $20,000 a year and pay almost $5000 in taxes. It is ludicrous.

This company sounds either super disorganized or scammy. I'd press it with them and start looking for another job in the meantime. Even if this gets resolved I think this company will be hard to work for.
posted by sockermom at 6:38 AM on March 7, 2014

Time to review any and all paperwork, email, etc. leading up to, and including, the papers you signed accepting the position. Specifically, look for any language that might have been inserted changing the position from full-time (W-2) to contractor (1099). It could be subtle wording like "You agree to this contract".
posted by Thorzdad at 6:48 AM on March 7, 2014 [1 favorite]

Employers do not have unfettered discretion in classifying their workers as employees or contractors. Indeed, regulators--both state and federal--take a very, very dim view of employers attempting to save money by classifying people who really are employees as independent contractors.

Do you have to report to work at a certain time? Do you work mostly on-site? Does your employer provide all the equipment you need? If the answers to all of those questions--or even two of them--is "Yes," then you are almost certainly an employee regardless of what your employer says about it.

I'd contact your local Labor Commissioner's office and report this. If you get fired or any adverse action is taken against you as a result, your employer will have just bought itself a very expensive employment lawsuit, i.e., you'll be lawyering up and suing their ass into next Tuesday, assuming the California DOL doesn't beat you to the punch.
posted by valkyryn at 6:51 AM on March 7, 2014 [13 favorites]

You might take a look at Labor Code 970. Prohibits an employer from engaging an individual to move for a job with false representations.
posted by ClaudiaCenter at 7:11 AM on March 7, 2014 [8 favorites]

valkyryn is telling you the truth, and an important fact that a lot of people miss. This isn't a willy-nilly decision. There are specific rules in place, IRS rules, that define who is an employee (a W2) and who is running their own business as an independent contractor (a 1099). Our use of "contractor" to mean "temporary labor" has confused the issue, and overwhelmingly this is in the employer's favor. For example, in your case.

Please don't become a 1099 if you don't understand what is involved. There are dozens and dozens of questions posted to AskMe from folks who got into it without really understanding. Don't be one of them. Being a 1099 can be rewarding, but it's something you need to decide to do, not something another person pushes you into.
posted by Houstonian at 7:15 AM on March 7, 2014 [1 favorite]

they stone lied right to your face. my first impulse would be to go apeshit in their c-suite, sweep stuff off desks and holler "YOU MOTHERFUCKERS LIED TO ME!" my second impulse would be to get a labor lawyer and have them take care of it.
posted by bruce at 7:18 AM on March 7, 2014

The big difference is that you will have to pay the employers portion (6.2%) of the social security tax (12.4%) and you will have to make withholding tax payments which is a bit of administration, but not a showstopper.

That's the first difference. Other differences include

• No paid vacation
• No sick time or personal days
• No access to employer health insurance
• No access to employer 401K, HRA, or other employment-based benefits
• No access to unemployment insurance if you are laid off. (You couldn't have been laid off because you were working for yourself, remember?)

This is a bum deal all around.
posted by alms at 7:24 AM on March 7, 2014 [10 favorites]

There is a useful saying: never attribute to malice what can be adequately explained by incompetence. And it might be incompetence that is at work here. But after a certain point, the difference becomes academic.

+1 to valkryn and +1 to alms. This is a shitty situation to be in. Don't let them steamroller you.
posted by adamrice at 7:24 AM on March 7, 2014 [1 favorite]

Oh HELL no!

Be calm, do you have an offer letter? If so, it should be outlined there.

Otherwise, go to your boss and say, "I'm rather disturbed by this. I was very clear about coming on as a W-2, full-time employee with benefits, not as a 1099 contractor. I accepted the salary accordingly. If you want me to be a contractor, I'll consider it, but we do need to renegotiate the rate, since clearly a full-time employee makes less than a contractor."

Please, please, please, in the future, do not pick up and move across country unless your offer letter includes the specifics of the offer, including the annual pay, bonus structure, and full benefits package.

My offer letter explained who our health insurance company was and what they charged per month for coverage. If your letter didn't have this...well, just don't let it happen again.

I am praying that your boss is just mis-informed and not a total scumbag.

If it is a contract position, then take it for exactly as long as you need to, to secure better employment.

"Fine, I'll accept this, as a contractor." Smile and make plans to get out ASAP!
posted by Ruthless Bunny at 7:33 AM on March 7, 2014 [3 favorites]

I came in to say what Valkryn pointed out - an employer can't just deem you a 1099 worker if you are actually, by the common law definition, an employee. It's a multi-factorial analysis, not just an employer's label of how you are paid. This is not new, but more and more employers are trying to avoid having "employees" for benefits purposes (to avoid the ACA pay or play penalties, for example).
posted by Pax at 7:54 AM on March 7, 2014

Mod note: This is a followup from the asker.

Hi guys and thanks for the answers thus far. A couple of clarification points.

I was a contractor / consultant before this as well what that meant was that a third party was considered my actual employer and was dealing with payroll etc. That was the role I just left as an hourly employee but the third party company didn't provide vacation benefits or anything like that.this is what I had assumed what's going to happenwhen I said I wanted to be a w2 contractor.

also I knew there wasn't going to be any relocation bonus and I knew I was not going to be an employee of this current company.

additionally the piece of paper I signed I'm sure said agree to the contract I have no real answer to that other then I was distracted and throwing things out of my old spot and it being involved in moving.

finally in terms of designation they do provide me with my equipment however way it works is that I don't theoretically have to be in the office or work set hours throughs since my job does involve communication with people I am certainly constrained by that fact but that's not that important

posted by cortex (staff) at 7:59 AM on March 7, 2014

Also, as a 1099 employee, you should be using ALL your own equipment -- nothing should be issued to you by the company: phone, laptop, anything.

Declare shenanigans.
posted by gsh at 8:00 AM on March 7, 2014

Reinforcing what others have said about you probably not being a 1099 employee in the eyes of the government: When I last reviewed the California labor website, the regulations basically stated that by default you are considered an actual employee, not a contractor, and to say otherwise requires proof. Proving that an employee is actually a contract worker (1099) gets harder the more that worker is working in the employer's office, using the employer's materials, working per the employer's schedule, working in an open-ended situation (like, you're working there until you're fired or quit instead of on a specific project or for a specific period of time) and working at the employers direct, constant direction.
posted by LionIndex at 8:04 AM on March 7, 2014

Do you have to report to work at a certain time? Do you work mostly on-site? Does your employer provide all the equipment you need? If the answers to all of those questions--or even two of them--is "Yes," then you are almost certainly an employee regardless of what your employer says about it.

Although you are certainly right that many folks are incorrectly classified as contractors when they are in fact employees, these questions are just not that simple. It is extremely common for legitimate contractors to be required to work on site within very specific hours and to be provided equipment like a computer and phone. Determining the difference between contractors and employees is a fairly complicated question that even attorneys who specialize in the field may disagree about in specific cases. It is a very nuanced question. Admittedly many people get it wrong and end up on the wrong side of the DoL as a result, but I'm not sure that attacking the job on that basis is your most productive line of inquiry anyhow.

To address the original question, I think it would be perfectly reasonable to state that you intended to take the job as a W-2 employee and that you need them to either do that or to increase your salary to make you whole. Don't do it in the form of an ultimatum, but politely and firmly state your case. You have nothing to lose by negotiating, if they refuse you can still elect to take the job as is, if you decide that is the best course of action for you. Getting into a pissing contest about the nature of the task as an employee or contractor before the job even begins is highly unlikely to be a productive way to approach your problem.
posted by Lame_username at 8:09 AM on March 7, 2014 [3 favorites]

Calling yourself a "W2 contractor" without having gone through an agency to set up the deal might have been the point of confusion. They probably just heard "contractor" and set you up that way. I don't think it's standard practice for a company to hire someone as a W2 contractor and then go find an agency to run it through. Usually the agency brings you in.
posted by bleep at 8:28 AM on March 7, 2014 [5 favorites]

Yeah I agree that the use of "contractor" here is confusing. You can be a W-2 Employee with a contract, a W-2 employee of company A contracted out to company B, or a 1099 contractor. These are all are very different beasts.

On one horrible, desperate occasion, I was a 1099 "contractor" that was essentially required to be in the office 9-5, M-F, on all their equipment, with a company email address and everything...but I was not an employee. I was a ghost--no vacay or benefits, not attending meetings, not technically part of the company, but still THERE, day in, day out.

I do believe that company eventually ran afoul of the IRS, because now their contracting policies are very strict and to-the-letter-of-the-law.

It sounds like your new bosses are taking advantage of a bit of confusion of terms, in order to have you be basically a ghost employee. Do not put yourself in this situation, if you can avoid it; if you cannot (it happens! I had no other options either), get out as soon as you can.
posted by like_a_friend at 8:49 AM on March 7, 2014 [3 favorites]

No, no, no, no, no. You probably ALWAYS want to be a W-2 employee. As a 1099 employee, you have to buy your own health insurance, among other expensive consequences. That's okay if you figured that in to your salary, but you didn't. This company flat out LIED to you, in a big and substantial way that affects your income in a big and substantial way. They may be able to make it right by increasing your pay to the point where subtracting out your additional taxes and costs such as health insurance you're making what you thought you'd be making as a W-2 employee. They may be able to make it right by transitioning you to a W-2 position.

Try to have them make it right. REGARDLESS of whether they do, start looking for a new job immediately. Do you really want to work for an employer who lies to you in such a big way?

+1 to alms's and rdr's answers above.
posted by tckma at 10:33 AM on March 7, 2014

in terms of designation they do provide me with my equipment however way it works is that I don't theoretically have to be in the office or work set hours throughs since my job does involve communication with people I am certainly constrained by that fact but that's not that important

Yes, it is. A lot of professional employees don't necessarily have set work hours either, but they are still generally expected to be there most of the time during business hours and do most of their work on-site.

The fact that you have a contract is irrelevant. Both employees and contractors can have contracts. All union employees do, for example. It also doesn't matter how the contract classifies you. Lots of employers gin up contracts that basically say "You're a contractor for the purpose of pay but an employee for all other purposes." That's illegal. All that matters is what the contract says about your duties. If they make you look like an employee, you should be classified as an employee, regardless of what your employer wants or the contract says. It's just not something employers and workers are allowed to decide for themselves.

Also: there is no such thing as a "W2 contractor". W2s are for employees. 1099s are for independent contractors. Ne'er the twain shall meet.
posted by valkyryn at 10:38 AM on March 7, 2014 [4 favorites]

The OP wrote: "I said I wanted to be a w2 contractor…I knew I was not going to be an employee of this current company."

OK, I think you screwed up here. There's no such thing as a W2 contractor.

The company is still being dubious at best by treating your position as a contractor position—it sounds like you should be a regular employee. But it also sounds like you gave them a wide opening, so I would turn the dudgeon way down.
posted by adamrice at 11:36 AM on March 7, 2014

Mod note: This is another followup from the asker.

Hey all just to be clear, it's fairly common in this industry for two types of people to be referred to as contractors. The first type is obviously 1099 employees and the second group is employees of a third party company who are more like consultants I guess. Both are called contractors. In fact my boss worked at my old company a while ago as did another member of the team. Both were in the same type of role as I was.

Tldr w2 contractor is a term that is used to describe people who are w2d through a separate firm.

posted by cortex (staff) at 11:52 AM on March 7, 2014

I agree that this whole "W-2 contractor" thing is almost certainly the source of the confusion, because I agree, there is no such thing as a W-2 contractor just the same as there is no such thing as a 1099 employee. If you are a contractor, you are paid a set rate and given a 1099. If you are an employee, you are paid with taxes and stuff taken out and remitted, and then given a W-2. I would definitely communicate to them that you're going to need to be brought on as an employee or else paid the difference.

The 1099 and W-2 are just forms and the forms themselves have nothing to do with the structure of your arrangement with the company. It does not matter if it is common to refer to things this way, in IRS terms it is incorrect and very likely to lead to misunderstandings, which it has. The IRS is the one that makes these definitions, not the industry.
posted by Sequence at 11:55 AM on March 7, 2014

Also, in this case, you would be called a contractor of firm B while you were an employee working for firm A doing firm B's work; you would not be a contractor for firm A, you'd be an employee of firm A. Technically, firm A is the contractor, but you're their representative on site. In this case, there's no longer a second firm, so the words you use need to describe entirely your relationship to this one company.
posted by Sequence at 11:57 AM on March 7, 2014

w2 contractor is a term that is used to describe people who are w2d through a separate firm.

I'm familiar with this set up but the way you described it, that "separate firm" doesn't exist. If you told them you wanted to be a W2 contractor without a pre-existing agency relationship, they may have thought you meant 1099?
posted by bleep at 12:35 PM on March 7, 2014

Hey all just to be clear, it's fairly common in this industry for two types of people to be referred to as contractors. The first type is obviously 1099 employees and the second group is employees of a third party company who are more like consultants I guess. Both are called contractors.

Again, I must correct your terminology. What you mean to say is that there are some contractors who receive 1099s directly from the employer, and other contractors who receive W2s from a third-party from whom the employer has contracted them and to whom the employer sends their contracted payments.

But there is no such thing as a "1099 employee." It's a contradiction in terms.

If you are acting like a W2 employee, your employer must either give you a W2 or pay a third-party to give you one. In the absence of a third-party, your employer cannot give you a 1099.
posted by valkyryn at 1:05 PM on March 7, 2014

Yes, people get the words mixed up. I've definitely heard "W-2 contractor" before. But you need to be very clear with people and use concise terms, otherwise you find yourself in the situation that you are in right now, and you could find yourself with unpleasant surprises later.

Ask yourself this question: Where will your paycheck come from?

If you said, "From the company I interviewed with the other day" then you are their employee. They send you paychecks. At the end of the year they send you a W-2 for you to do your taxes.

If you said, "From a company like Manpower, Kelly Services, TekSystems, Kforce, or Premier Staffing. You know, a recruiting company. They hire contractors, and ship them off to people like the folks I interviewed with." You are an employee of Manpower, etc. At the end of the year, Manpower or whoever will send you a W-2 for you to do your taxes.

If you said, "Paycheck?? Wha? No no, I send invoices and get paid according to the terms outlined in my contract, such as Net-60." You are an independent contractor. You estimate your taxes quarterly. At the end of the year, you will use a 1099-MISC to do your taxes, likely along with a Schedule A to itemize deductions.

I believe that you hoped to give the second answer. However, right now you must give the third answer. If you are looking at the third answer and wondering what the heck I'm talking about, you need to get this sorted ASAP. Go back to the person you interviewed with, and explain that you'd like to work through whatever agency. Because you will be bringing the business to the agency (Manpower or whatever), they will likely charge less money to the client (the person you interviewed with) because the work is being done only on one side of their house (that is, only the invoicing and payrolling effort, but not the recruiting effort).
posted by Houstonian at 1:54 PM on March 7, 2014 [2 favorites]

But there is no such thing as a "1099 employee." It's a contradiction in terms.

When I was last interviewing for a job, I had a phone screen with a company that told me they had a "contract" job for me. I asked specifically if I'd get a 1099 or a W-2 if I were to work there. The answer was "You'd be a 1099 employee."

Now, of course, my response was, "OK, thank you for your time, but I am not interested in this position." 1099 is a deal-breaker for me because it's such a pain in the rear.
posted by tckma at 3:14 PM on March 7, 2014

OP, you are using colloquial terms that don't mean what you think they mean. "W2 contractor" is a confused term that only fits to Houstonian's second definition above. But where you've landed with this company sounds like Houstonian's third definition. Because there is no such legal designation as a "1099 employee." It doesn't matter what your industry is. I'm sorry. If you're receiving 1099 forms, you only do so by invoicing the company for work you performed at an agreed upon rate, usually hourly or per-project. If that isn't what you thought you were agreeing to, talk with the person who hired you.

By the way, have you read the contract you signed? What does it say?
posted by ImproviseOrDie at 11:30 PM on March 7, 2014