If my employer forced all employees to go from W2 to 1099, is that legal?

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If my employer forced all employees to go from W2 to 1099, is that legal?

Were were all employees for 2 years. We received W2’s for 2 years ago but owner had filed reports late and was behind in payroll taxes. When it came time to do W2’s for last year she told us all we were going to be 1099 employees. We had never been told this and nobody expected to get a 1099. She told us that she would pay us the difference between gross/net for last year from her personal account to help cover self employment tax if we all agreed to accept a 1099. It was either that or she would close the doors. So to keep our jobs we all agreed. Was this legal what she did?

Asked on August 25, 2012 under Employment Labor Law, Texas

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

It is legal to replace all employees with independent contractors--i.e to shift from workers who would receive a W2 to ones who would receive a 1099. But the change must be legitimate. To be an independent contractor (1099), an worker must be independent, at least to some degree. The employer cannot tell him or her exactly how to do his or her job, or require all work to be onsite, or set hours for work which the alleged "contractor" must obey; the contractor must be responible for his/her own equipment and tools, should market his or her services to other potential clients or employers, and must be in a position to realize a profit or experience a net loss on his/her work--not simply be paid a wage. You can find the precises criteria for when one is or is not an independent contractor on the U.S. Dept. of Labor website. If workers do not meet the criteria to be independent contractors, then they are employees, and must be paid and otherwise treated as employees.


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