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In the world of scams and schemes and everything in between, you may wonder if 1 person can be two things at once—an independent contractor and an employee. Well, the answer is yes.
I answered your question in the first sentence. So, I’m not sure if you’re still reading because you’re trying to squeeze some employee benefits out of your company that hired you initially as an independent contractor.
Or maybe you’re just trying to keep your main income and get some side income. It’s really none of my business.
Either way, I’m glad you’re here. I think it’s important that you understand what’s considered an employee (versus an independent contractor) and the risks (and benefits) of each.
So, let’s get started.
Can you be both 1099 and W2?
Yes. An independent contractor receives a Form 1099-Misc, and an employee receives a Form W-2.
However, there may be certain situations where a person can be both an independent contractor and an employee. This applies only if the job duties don’t overlap (or aren’t the same).
For example, even though the neighborhood says Tommy doesn’t have a job, Tommy says he has two jobs. During the week, Tommy teaches at a high school. On the weekends only, he runs a small landscaping business.
So, any landscaping services Tommy provides to the high school are separate from his job (as a teacher).
Can you be an employee and self-employed at the same time?
Yes, you can be an employee and self-employed at the same time. However, you can’t do both jobs at the same exact time or it might be considered time theft.
For example, you clock into work at your administrative assistant job. However, while you’re clocked in (on that job), you also do remote work as a copywriter for another company.
In this scenario. Don’t take Nike’s advice. Don’t do it. Reconsider.
Do not pass go. If you do, you may end up going to jail (just like in the Monopoly game) with real handcuffs.
Also, you should consider any effect your extra income will have on your taxes. In some cases, more money equals more taxes. So, do your homework on this before your tax bill comes in the mail.
Yes, it’s possible to hire both independent contractors and employees. So, you aren’t required to hire only employees or independent contractors.
No, it’s not the same in the technical sense. However, the answer is a little more complicated.
Here’s the short answer. An employee is any person whom a company has the right to control how they do their job and the process used to complete the job.
However, an independent contractor controls how they do their work and can’t be controlled by the company (that hired them). The only thing the company can do is require that the product or end result meet certain requirements.
You ever get that feeling…
Here is a list of factors to determine whether a person is an independent contractor or an employee. If the person checks off a lot of these boxes, then they will be considered an employee.
(1) Company’s Instructions.
The company tells the person how to complete the job and/or tells them to follow certain instructions. Keep in mind that a company can give an independent contractor certain job requirements, e.g., complete the task in 30 days.
(2) Company trains the person.
The Company provides training to the person and/or that person must follow the Company’s process for completing the task.
(3) The person can’t hire other people.
The person isn’t allowed to hire other workers or sub-contractors to help them complete the task.
(4) The person’s work affects the Company’s success.
There is a direct relationship (or link) between the person’s task and the Company’s success.
(5) The Company controls the work hours.
The Company sets the person’s hours or sets requirements for when the work must be completed (such as during business hours).
(6) There is a regular or frequent relationship between the person and the company.
The person and the Company have an ongoing relationship—even if it’s not full-time. This can include frequent or regular time periods or whenever work is available.
Please Note: It doesn’t matter if the worker is part-time, seasonal, or worked for a short time. So, the person could still be labeled an employee (under these circumstances).
(7) The person can’t hire and supervise their own assistants.
The person doesn’t have the right to hire assistants without the company’s permission. So, the company shouldn’t reimburse the person for any payment amounts made to any of contractor’s assistants.
(8) The person can’t work on other jobs or projects.
The company has the right to stop the person from working on other projects or working for other companies.
(9) Determining the job location.
The company controls where the person works. The company also controls where the person works in its facility, building, or office space. The company also has the right to control or supervise the person.
(10) Determining the order and/or sequence of work.
The company determines the order in which the person performs the work or task.
(11) Progress reports.
The person must report to the company and give them progress reports.
(12) The payment terms.
The person is paid only by the hour for the time they worked instead of getting paid for each job.
(13) The number of companies the person works for.
The person doesn’t work for more than one company at a time.
(14) Business expenses payments.
The Company reimburses (or compensates) the person for any business-related expenses.
(15) The ownership of tools and/or equipment.
The company provides the person with the tools and/or equipment they need to perform services. If the company leases the equipment to the person, the independent contractor receives better payment terms (than they would have received on their own).
(16) The amount of money the person has invested in their business.
The person can’t perform any services unless they use the company’s equipment, office furniture, machinery, etc. Also, the person hasn’t invested that much money in their business.
(17) The person’s right to perform services for the public.
The person doesn’t provide services to the public. Factors include:
👉🏾They don’t have an office and assistant(s).
👉🏾 They don’t have signs for their business.
👉🏾They don’t have a business license.
👉🏾They don’t list their services in a business directory, e.g., Yelp, Google, etc.
👉🏾 They don’t use advertising for their services.
(18) Person’s profit or loss for their services.
The person can’t make any money for their services. Factors include:
👉🏾The person doesn’t hire, supervise or pay any assistants.
👉🏾The person doesn’t have their own office, equipment, materials, etc.
👉🏾The person doesn’t have any (repeat) business expenses.
👉🏾The person isn’t performing specific jobs or tasks or getting paid in advance to perform specific jobs or tasks.
👉🏾The person’s services don’t affect their business reputation.
(19) The company’s right to fire the person.
The company can fire the person at any time, e.g., at will. So, there shouldn’t be any legal issues for this termination.
(20) The person’s legal responsibility if they don’t complete the job.
The person is not legally responsible for completing the job. Also, the person is not required to pay the company any money damages if they don’t complete the job or task.
(21) The person’s special skill.
The person doesn’t have any special skills that are necessary to complete the job requested by the company.
(22) The understanding of the relationship between the company and the person.
The person hasn’t agreed in writing that he or she is an independent contractor (and not an employee) of the company.
The person and the company don’t have a contract with a specific job described in that contract. The person and company also don’t have a contract describing the person as an independent contractor.
(23) The company directs or supervises the person.
The person performs a task that’s usually supervised by the company.
How long can an independent contractor work for a company?
An independent contractor may need to…
There is no time limit. So, an independent contractor can work for a company for as long as they want.
However, the more projects an independent contractor works on or the longer they work for the company, the more likely the independent contractor’s status can change to an employee.
Why is it important to distinguish between an employee and an independent contractor?
An employer is required to take federal income taxes from an employee’s paycheck (or wages). However, a company isn’t required to take any income tax from an independent contractor’s paycheck.
Also, a company must get worker’s compensation insurance, unemployment insurance, and disability insurance for employees.
Another important difference is works “made for hire.” By default, a company automatically owns the copyright of any work that an employee creates.
So, a company and an independent contractor would have to agree in writing (beforehand) that any work (created by the independent contractor) belongs to the company. If no agreement is in place, the independent contractor automatically owns the copyright.
Let’s add a little plot twist. Even if the agreement states the work is made for hire (or that the Company will own the copyright), the work must be in one of the following categories:
- contribution to a collective work
- part of a motion picture or other audiovisual work,
- translation
- supplementary work
- compilation
- instructional text
- test
- answer material for a test
- atlas
So, if the type of work doesn’t fit into of those categories, the company can kiss its copyright goodbye. Also, let’s take a quick little detour to California.
I’m not licensed to practice law in California, but I’m an attorney and I can read. If you’re a California resident (or company), you may want to consult a California attorney if you need information that’s specific to your situation.
Now that I got that disclaimer out of the way, I wanted to let California residents (or companies) know that you may want to avoid the “work made for hire” language in your contracts.
According to California Labor Code Section 3351.5(c), any person that creates a “work made for hire” is an employee. I just wanted you to be aware of that booby trap if you plan on hiring independent contractors to create a “work made for hire.”
But wait, there’s more. Let’s say the Company needs to own the copyright but it’s not in 1 of those 9 categories. The company and the independent contractor can use an “assignment” clause instead.
The “assignment” language helps a company avoid using the “work made for hire” language, which can turn the independent contractor into an employee, e.g., in California. Also, this allows a company to own the copyright in the “work made for hire” regardless if it’s listed in any of the above-listed categories.
Wrapping It Up
Being categorized as an independent contractor or an employee is a big deal.
For companies, this classification can determine if a company must pay employee benefits or if it loses its copyright in a “work made for hire,” etc.
For independent contractors, you can also get an employee name tag. But you shouldn’t do your side hustle on your main hustle’s time.
You also should figure out how much more taxes you may pay. Finally, you should make sure to follow all the right steps for starting a business, e.g., an independent contractor agreement template.
Either way, get money.
So, will you be getting another stream of income or is 1 job more than enough?