Should I hire remote workers as independent contractors or employees?

Hiring someone new is always exciting, especially when they’re working remotely. But figuring out whether to classify them as an independent contractor (1099) or an employee (W-2) can be tricky.

The truth is that this decision isn’t just about paperwork. The way you classify remote team members can change your taxes, your responsibilities, your flexibility, and even how your business culture feels. You don’t need to be a legal expert to get it right, you just need to know the basics. 

Making the Right Classification 

There are several criteria to determine if a remote worker should be classified as a contractor or as an employee. 

Are you hiring for a project or an ongoing role? 

The key to choosing the right classification isn’t about what they do it’s about how and why they’re doing it. 

• Independent Contractor (1099): You’re hiring them for a specific project or skill. They usually work with other clients too, and they’re not part of your daily team. 
• Employee (W-2): You’re hiring them to join your company in an ongoing role. They’re part of your regular operations and team. 

This matters because getting it right protects you from legal and financial headaches later. The more clearly you define what you need, the smoother everything else will be. 

Who’s calling the shots? 

This comes down to control. 

• If you’re setting hours, providing their tools, and closely supervising their tasks, they’re likely an employee. 
• If they decide how and when to work, bring their own tools, and handle their own process, they’re probably a contractor. 

If you find yourself telling them how to do every step, they’re probably not a contractor. 

What do the IRS and other agencies look at? 

The IRS and state agencies focus on a few main points: 

• Behavioral control: Do you tell them how to do their work? 
• Financial control: Who pays for their tools and expenses? 
• Type of relationship: Are you offering benefits? Is this a permanent role or a short gig? 

Some states have stricter rules, so make sure you know what applies where you operate. 

Taxes, Benefits, and Paperwork: What changes? 

Here’s what you need to know: 

For 1099 Contractors: 

• They handle their own taxes 
• You don’t pay payroll taxes, unemployment, or benefits 
• You file a 1099-NEC if you pay them $600 or more in a year 

For W-2 Employees: 

• You handle payroll taxes, Social Security, Medicare, and usually unemployment insurance 
• Benefits may be required, depending on your policies 
• You file a W-2 for them each year 
  

What happens if you get it wrong? 

You want to take care when making the decision. Classifying someone incorrectly can lead to: 

• Owing back taxes plus penalties and interest 
• Potential lawsuits for missed overtime or benefits 
• Audits which can take up time and money 

It can also hurt your reputation. Workers talk, and misclassification can damage trust quickly. Going too far in the other direction and classifying everyone as an employee can lead to costs and requirements you might not need yet. 

Location Matters 

Where your workers live (and where you’re based) affects how you classify them. 

• State rules: These can be stricter than federal rules and vary widely 
• International workers: Different tax and employment rules can apply and sometimes you’ll need to look out for permanent establishment concerns 

Check the rules for each state or country before you make a final call. 

Common Pitfalls 

Even smart business owners can get caught here: 

• Hiring a “trial contractor” who’s actually an employee in disguise 
• Labeling someone a contractor just to avoid payroll taxes 
• Expecting a contractor to work only for you or follow your daily routine (that’s employee territory) 

The Bottom Line 

This isn’t about scaring you. It’s about helping you make smart calls now to avoid problems later. Here’s how to move forward: 

• Ask these questions and get clarity 
• If you’re on the fence, get professional advice. It’s a small cost compared to fixing misclassifications. 
• Use resources like the IRS contractor guide or your accountant’s insight 

Good business owners don’t have to know everything, they just know when to look up answers or ask for help. Ready to review how you classify your remote team? There’s no better time than now.