Most homeowner associations utilize 1099 contractors instead of hiring full or part-time employees. The primary benefits are the flexibility and cost savings. A 1099 contractor is a legal and tax-related term used to refer to the type of worker who contracts his services out to an association or any other type of business. The “1099” refers to the Internal Revenue Service (IRS) form that an independent contractor receives stating his income from a given party during a given tax year. A 1099 contractor is not an employee of the association for which he performs work; instead he is an independent contractor, who is considered to be self-employed. Like most self-employed workers, they do not receive employee benefits, such as health insurance or retirement benefits, but they do have more flexible work schedules and locations.

When balancing the tradeoffs between a 1099 contractor or hiring an employee, the largest consideration should be the way the worker is compensated for his services. In a typical scenario, independent contractors are not paid until the service is fully completed, and they are not offered any type of employment benefits. As a result, the payment scheme for most such workers requires more independence and responsibility, as things such as medical and dental benefits, savings to cover future sick and vacation days, as well as tax obligations, falls solely within the purview of the worker.

1099 contractors who make more than a certain amount per year, presently $600.00, are issued 1099 forms from the party that paid them. Regular employees must pay income and Social Security taxes on their income, and independent contractors must do the same;

the difference is that employers generally withhold taxes on the employee’s behalf, while 1099 contractors are responsible for their own payments. Additionally, employers generally cover half of the total Social Security and Medicare taxes, a 15% tax of net income in 2012, meaning that the employer covers 7.5% on behalf of the employee; independent contractors are typically responsible for the entire amount.

Since an independent contractor is considered self-employed, he is essentially the employer and employee; therefore, he is responsible for withholding his own taxes and paying the total amount of the Social Security and Medicare taxes. Regular employees usually have estimated tax liabilities withheld from each paycheck, but this is not done for a 1099 contractor. Self-employed individuals may be required to make quarterly installments against their projected tax responsibilities for the year.

The independent contractor generally has scheduling advantages over the employee; often, he is not restricted to the typical nine-to-five workday and Monday-through-Friday work week like an employee. Deadlines, of course, may confine the independent contractor’s work schedule. On the other hand, he generally doesn’t get the benefits that employees often do, such as time off with pay, whether it be due to illness or leisure.

Further, there are different legal implications for an independent contractor than an employee, and these implications can vary greatly based on the specific contract terms between the contractor and customer. In most cases, the 1099 contractor can be discharged at will, with or without cause. Additionally, he is usually responsible for his own health insurance and retirement benefits, as the companies worked for are under no obligation to provide benefits.   WDPM

Copyright – William Douglas Management, Inc.