1099 employees are freelancers or self-employed workers; the term originates from the 1099 IRS form used to report income paid to independent contractors. These are people who are not considered to be employees of an organization, but who are hired just to perform specific tasks or services. These tasks could be anything from graphic design or catering, but what all 1099 work has in common is that it is done on the employees’ own schedule. One of the defining characteristics of a 1099 employee is that they control how and when they complete tasks versus being asked to do so in certain ways and at certain times by employers. Other factors that distinguish 1099 workers include the level of control the hiring entity has over the employee, the type of work being performed (1099 employees are usually hired for specialist skills), and the permanence of the working relationship. If a contractor received benefits, this also wouldn’t be classed as meeting 1099 criteria. Unlike full-time employees, 1099 workers are responsible for managing their own taxes. This means they pay both the employer and employee portions of Social Security and Medicare taxes as well as any applicable local and specialized taxes. When paying a 1099 worker, you need to provide them with a 1099-NEC (Non-employee Compensation) form if you’ve paid them $600 or more during the tax year. This details the total compensation you’ve paid and is also sent to the IRS for tax reporting. You don’t need to withhold or file taxes, unemployment insurance, or business expenses. If your contractor has already established their own C-corp or S-corp, you don’t need to provide them with a 1099 as they will be considered a separate business entity. Instead, you may need to provide them with a Form W-9, which is used to collect their taxpayer identification number (TIN).
PEO (Professional Employer Organization)
What is a PEO (Professional Employer Organization)?
A Professional Employer Organization (PEO) is a firm that provides comprehensive human resources (HR) services to small and medium-sized businesses (SMBs). Through a co-employment model, a PEO assumes responsibility for employee administration, allowing businesses to outsource functions such as payroll, benefits, regulatory compliance, and workers’ compensation.
Function and Scope
In this partnership, the PEO becomes the employer of record for tax purposes and manages all HR-related functions. This includes processing payroll, handling tax filings, managing employee health and retirement benefits, and ensuring compliance with all relevant employment laws and regulations. The client company retains control over day-to-day employee management and business operations.
Benefits and Strategic Importance
Partnering with a PEO allows businesses to leverage economies of scale for better rates on benefits, access expert HR guidance, and reduce administrative burdens. This support helps businesses focus on their core operations and growth while minimizing legal risks associated with HR and compliance. The strategic importance of using a PEO lies in its ability to provide SMBs with resources and expertise that would typically be available only to larger organizations.
A PEO offers a strategic advantage for businesses looking to outsource their HR functions efficiently. By providing expert services and comprehensive support, PEOs enable businesses to improve operational efficiency, enhance employee satisfaction, and navigate the complexities of HR management with greater ease and confidence.
Employer of Record Platform
Build your global team in 150+ countries with our best-in-class EOR
