1099 Verses W2

[Primeiro]

A friend of mine is working for a nightclub in California that has recently been bought by a new owner. This new owner has kept the previous bartending staff but wants the bartenders to work as independent contractors and henceforth be given a 1099 at the end of the year. Is this legal? I would think my friend was an "employee" and not an independent contractor. The new owner also stated that the employees could choose how they wanted to be classified with a stipulation that if they chose to be employees that they would be subject automatically to a three month probation period with a performance review that could lead to termination. Can this be right?? Are bartenders employees or independent contractors and if so where does one fit under insurance liabilty etc. What are the benefits for a worker and for the new owner??

[Cook]

The legal definition of an employee is a person who is told what to do and how to do it by his employer.  The employer provides the tools and/or location for the job and supervises the employee's work.  The employer provides liability and workers compensation insurance for the employee, pays a salary or hourly wage, provides lunch and rest breaks, withholds taxes and pays social security taxes, and provides a W-2 to its employees.

An independent contractor is a "self-employed" individual who may provide the same services for several companies at the same time.  He or she is paid to do a specific job, but usually can decide for himself how and where to do the job, and may have his own license.  An independent contractor is paid a contract rate without tax withholding, reports and pays his own estimated taxes, and provides his own insurance.  He has no right to demand lunch or rest breaks, overtime pay or vacations.  He receives a 1099 form for all money he is paid by each company for which he works.

Some people like to be independent contractors because they get the full amount of their pay without deductions, although they are still responsible to pay all taxes they owe, plus a double Social Security hit for "self-employment tax".  The IRS learns about the pay from the 1099 form sent in by the nightclub.  Other people like to be employees so they get employee benefits and workers compensation insurance provided for them, legal protection for overtime, rest breaks, medical leave, rights against illegal discrimination, and taxes are withheld and paid when earned, so you can get a tax refund later.    In the end, the test is not what you want to be called, or what the company calls you, but it depends on what your job entails and how much control the company has over the way you do the job.  In your example, all of the bartenders are probably really "employees", and therefore entitled to the benefits of employees.  It isn't really possible to let different employees decide what to be called.  If the company tries to give 1099s, it is violating the law and could be prosecuted for failing to withhold taxes and provide insurance and benefits.