Hiring & Contractors (1099 vs W‑2) (2025)

Classification rules, reporting requirements, and best practices to avoid misclassification penalties.

Employee vs Contractor

Use behavioral, financial, and relationship tests to determine worker classification. When in doubt, consult counsel — penalties for misclassification can be significant.

Reporting

Issue Form W‑2 for employees and Form 1099‑NEC for contractors paid $600+ in a year. Collect Form W‑9 from contractors up front.

Best Practices

  • Document contracts and expectations
  • Avoid exerting excessive control over contractors
  • Treat contractors like businesses (invoices, business insurance)
  • Review state-specific worker classification rules