Pros and cons of the '1099 economy'

If you've been keeping up with business news, then you're probably aware of the rise of on-demand companies that provide anything from in-home massages to grocery delivery. Some people have called the phenomenon the "1099 economy" because most of these services are provided by independent contractors -- not company employees -- and a company fills out a 1099 MISC form when it hires a contractor.

For companies operating in this area of on-demand services, there are many benefits of hiring contractors to perform the work. When workers are classified as contractors and not employees, a company can avoid withholding and pay employment-related taxes and insurance, and work-related expenses are covered by the contractor.

When a company switches from a contractor model to an employee model -- as the home-cleaning service My Clean did -- labor costs are likely to increase significantly.

However, businesses can benefit from hiring workers as employees, as opposed to independent contractors. An employee with protections may be more likely to be a happy employee with a productive relationship with the employer. Moreover, when a worker is classified as an employee, the employer legally has more control over the employee's behavior, such as how the worker dresses and interacts with customers.

You may have seen news of two federal lawsuits currently being heard in California that could have major repercussions in the 1099 economy. Drivers for ride-sharing services Uber and Lyft have sued the companies, saying that the drivers have been misclassified as independent contractors. Both U.S. judges decided that the cases should proceed to jury trials.

Readers with employment law concerns may want to follow the cases as they progress.

Employers and employees alike should have experienced legal guidance when questions of employment classification arise. The attorneys of Shulman, Hodges & Bastian LLP provide comprehensive employment law representation.

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