1099 vs W2: Compliance Risks for Remote Teams
Misclassifying employees as contractors can bankupt your company. Know the difference.
· 1 min read
The gig economy has blurred the lines between employee and contractor, but the IRS remains very clear. If you control when, where, and how someone works, they are likely an employee (W2), not a contractor (1099).
The AB5 Law
Laws like California's AB5 serve as a bellwether for the nation. They use the "ABC Test" to strictly define contractors. If a worker performs a task that is central to your business (e.g., a writer for a newspaper), they are employees.
The Risks
If you get caught misclassifying, you owe back taxes, penalties, unpaid overtime, and benefits. It can amount to hundreds of thousands of dollars. Investors will also flee during due diligence if they see a "contractor-heavy" workforce that looks like disguised employment.
Solution: Use an Employer of Record (EOR) like Deel or Remote to hire international talent legally as employees, rather than risking it with sketchy contractor agreements.