In the past, 1099 employees and freelancers had few legal rights and protections. But recently, especially ever since the pandemic, more and more employers have started using this employment model to avoid paying costly benefits like health insurance and retirement benefits- a trend that's been met with some pushback from the freelancing community.
However, as a freelancer, you are self-employed and entitled to many of the same rights as employees. In some cases, the benefits you’re eligible for as an independent contractor may even be better than those offered to employees by their employers. Freelancers have legal rights that extend beyond those awarded to most other workers.
1099 employees are often confused about what their rights are. Learn about your 1099 worker rights and how to protect yourself in this article!
According to the IRS, any self-employed individual who works as an independent contractor is considered a 1099 employee and can claim self employed tax deduction. 1099 employee doesn't receive benefits such as health insurance or retirement benefits. Whereas W2 employees are entitled to overtime pay, minimum wage, and the right to unionize.
Now, when it comes to taxes, W2-employees have taxes withheld when they get paid. However, freelancers work for a company but don't get the benefits of full-time employment. They file as self-employed on their own taxes and are therefore responsible for paying their own social security, medicare, as well as other taxes that may apply. An employer can offer benefits to a 1099 employee, but they're not required to do so.
If you undertake work as an independent contractor, it's important to know your rights to avoid accidentally stepping on the wrong side of the law since you aren’t guaranteed the same legal rights as a W-2 employee.
The following outlines some of the top 1099 employee rights:
One of the greatest perks of working as a 1099 worker is the independence it provides. As a freelancer, your client has no authority or control over you, your projects, or your working hours. Plus, you get to be in charge of the project and decide the service rates, where you work, and subcontracting schemes.
Under certain circumstances, you may even have property rights to the work you've produced however, your employer can choose to hold property rights to your work in case you signed a written contract which states that you completed the work for hire, thus, it’s important that you read your contract agreement thoroughly to avoid any event which relinquishes intellectual property rights.
Unlike W-2 employees who have to be present at the office, as a 1099 worker, you can work at your convenience- whether you wish to work from home or from anywhere in the world. You have the freedom to work from a convenient place and whenever you deem convenient. Moreover, as a contractor, you have the right to set rates, although a company can opt not to hire you based on those rates.
A signed contract or agreement ensures that you establish a client-consultant relationship. This is a very important process and you must not overlook before you begin work for a client. Although a contractor lacks numerous benefits that are provided to a staff member. As an independent worker, you can write a contract that specifies payment, which should include the amount and the payment timeline as well as the termination conditions and particulars surrounding the job you’re being contracted for.
The contract should specify your work as that of a freelancer, and not an employee. Under any circumstances, if the contract is violated, both you and the contractor have the right to sue for infringement of the contract.
Another crucial thing that should not be overlooked is that your contract must include the termination conditions, otherwise, your client can end the agreement without warning. So, you must discuss the termination procedure before undertaking a project and incorporate it into a written agreement.
The contract should highlight the following:
In case of any violation of the contract, you have the right to take legal action.
The IRS follows a specific set of rules for classifying full-time workers from independent contractors. So, it is important to review the guidelines to determine the right classification. Every client is responsible for paying all employees, whether full-time or on contract.
Freelancers can settle for an hourly or fixed rate, but a written agreement must be in place to this effect.
As an independent contractor, working with several clients increases the likelihood of securing a higher profit. So, you have the right to promote and sell your services to other businesses since you aren’t legally required to work with a single client at a time.
If you have a signed agreement with a specific client, you still have the right to undertake other projects as well. It's equally your right to collaborate with other contractors to implement particular tasks on a project or even the whole project.
Although 1099 individuals can work when they want and where they want, there are a couple of rights and provisions that are strictly reserved for the W-2 employees, including:
Discrimination protection: As per the federal law- prohibiting discrimination, it is only applicable to employees, and not to independent contractors.
Minimum wage and overtime pay: Self-employed individuals are not eligible for minimum wage and overtime pay, since the contractor's rate is agreed upon before work commences. If the contractor works more than 40 hours a week, that is not the employer’s concern.
Taxes: As mentioned above, small business owners and entrepreneurs are not responsible for withholding taxes for an independent contractor, since a freelancer is treated as a self-employed worker, s/he is responsible for tracking and paying all the owed taxes to state and federal government. The employer does not have to make any employer contributions for Social Security and Medicare taxes.
Unemployment benefits and workers' compensation: The client or the business owner is not responsible for providing unemployment benefits to the freelancer or pay compensation benefits to contractors who sustain injuries or sick days.
However, in some states, the contractor can collect benefits from the state compensation fund, if s/he has paid separately into the state's unemployment fund.
If you are an employee of any company, your hours are somewhat restricted. You can't just work whenever or wherever you want to. If you're a 1099 worker, that doesn't apply. You have the right to work at your convenience and the place of your choosing so long as it gets done.
1099 workers are contractors who work for a company but don't have the benefits of full-time employment. They file Forms 1099-MISC or 1099-NEC as self-employed on their own taxes and are therefore responsible for paying their own social security, Medicare, and other taxes that may apply. An employer can offer benefits to a 1099 worker, but they're not required to do so.
An employer may not require that a 1099 employee work exclusively for them, and the work must fit with the employee's other commitments. The employer may not try to restrict when 1099 employees work or where they work. Though there are exceptions, such as if the employer provides tools and supplies necessary for the job or if a non-compete agreement is signed by both parties.
So, the most significant document for an independent worker is the signed contract, which establishes the expectations and requirements of both parties. Further, this document also protects the rights of an independent worker, making the agreement legally bound.
So, if you are interested in a new gig, don't undertake any project without a signed contract, this helps you protect your 1099 worker rights as an independent contractor.
Now, when it comes to filing your 1099 tax return, you can use FlyFin. Its 1099 tax calculator is powered by A.I. and helps you track your expenses. It automatically finds all tax deductions related to your profession. The entire process takes five minutes at max. Moreover, you get to consult a CPA to prepare your quarterly taxes for free.
FlyFin CPA Team
With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.