A Guide to 1099 Employee Rights for Contractors and Clients

Key takeaways

Contractors and clients must know a contractor’s legal rights to engage in the appropriate professional relationship and avoid worker misclassification.
Independent contractors lack certain anti-discrimination and labor rights and must take steps to protect themselves.
The integrality of independent contractors in today’s workforce has led many business owners to provide contractors the same benefits as their employees.

Independent contractors or freelancers are called 1099 employees in the US because their clients must file a 1099-NEC tax form to the internal revenue service (IRS) to report their earnings.

The term 1099 employee can be misleading since contractors are not employees in the legal sense; they are self-employed and have different rights and responsibilities. We explore 1099 employee rights below.

1099 Employee Rights

1099 employees have the following rights that ensure the business relationship remains compliant, their intellectual property is protected, and misclassification is avoided.

Right to a contract

Once a contractor and client agree to services, a contractor has the right to a formal independent contractor agreement, a written contract that clearly outlines the scope of work, contract length, pay rate, method, and schedule. If either party violates the contract terms, the opposing party can take legal action.

When we came to understand the importance that Deel places on individual country laws and making sure that contracts are structured in the right way, they really stood out.

Sudarshan Sivaraman, Head of Customer Success & SaleS, Turing

Right to control the workflow

Before signing the contractor agreement, a client can discuss deadlines and expectations but cannot tell a contractor how to complete the work or what equipment to use. Contractors can deliver the product or service as they see fit.

Right to control when and where they work

Unlike regular employees, who typically work eight hours per day for five days a week in a particular work setting, independent contractors can determine when and where they work.

Right to intellectual property

According to the Copyright Act of 1976, an independent contractor owns the rights to the work they complete for a client. However, a contractor may automatically transfer rights to their work if their contractor agreement states the commissioning client holds the rights or the work is classified as “work made for hire.”

Check out our primer on intellectual property protection for global teams.

Right to employ others

Contractors have the right to join forces to complete their work. For example, 1099 employees can pay subcontractors to share their workload or complete tasks. Contractors must ensure the client is aware of any subcontractors and include specific details in the written agreement.

Having one single place for contracts and payments with lots of withdrawal methods was key for us at the time. Then, we discovered Deel has much more power than just that.

Oscar Mastroberti, Head of Recruiting and HR, DevBase

Beware of worker misclassification

Worker misclassification is an illegal practice in which a company categorizes workers as independent contractors while treating them as employees. If the arrangement resembles an employment relationship, the contractor is considered an employee under the law and should be entitled to employee benefits and protections such as a pension plan, paid time off, and health insurance.

Rules defining employees and contractors vary by region. According to the US Department of Labor (DOL), several factors can help determine whether a client is treating a contractor like an employee; these include:

If a client expects the contractor to work at their office
If a client tries to assert a degree of control over a contractors working hours
If a client does not allow the contactor to work with other clients
If a client expects the contractor to accept additional work

Find out more about contractor vs. employee work relationships, or take this assessment to determine the correct worker status.

If a contractor believes they have been misclassified or that a client has breached their rights, they can contact a legal professional for advice and challenge their employment status. If a contractor can make a case for misclassification, they can file a lawsuit that could harm a company’s reputation and result in financial and legal penalties.

Deel Shield gave us peace of mind when hiring people as contractors in any part of the world. I don’t have to worry anymore about compliance. It feels much safer.

Chloe Riesenberg, People Specialist, Project44

Rights contractors don’t have

Although being an independent contractor means having the flexibility to work for different clients from wherever and whenever they want, there are privileges full-time employees have that contractors don’t. We cover these rights below.

Harassment and discrimination rights

While no independent contractor should experience harassment or discrimination, they may not be legally protected under labor laws. For example, federal anti-discrimination laws enforced by the United States Equal Employment Opportunity Commission do not cover contractors. Still, regional laws may provide broader protection. For example, anti-discrimination laws apply to independent contractors in some states, such as New York and Maryland.

Independent contractors also lack protection from the Family Medical Leave Act, the Americans with Disabilities Act, Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, and the Fair Labor Standards Act.

However, some state courts have determined equal opportunity rights for both independent contractors and employees. According to the legal advocacy group, A Better Balance, state-legislated protections exist in Maryland, Minnesota, New York, and Rhode Island.

California, New Jersey, Pennsylvania, and Washington have their own specific protections.

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Minimum wage and overtime pay

Independent contractors are not entitled to a minimum wage guaranteed under federal law by the Fair Labor Standards Act and do not receive overtime pay since they do not have set hours. Even if a contractor spends additional time on a deliverable, the client is not obligated to pay them more than what they agreed to in the contract.

We use a bunch of different tools, and now we're trying to bring everything into Deel. For us, being able to have one place where we pay contractors and manage HR solves a huge problem. It makes things seamless.

David Stepania, Founder, ThirstySprout

Unemployment benefits

Clients do not contribute to an independent contractor’s unemployment benefits. If a client decides to end the relationship, unemployment insurance is the contractor’s responsibility. Every 1099 employee should therefore invest in the state’s unemployment fund in case this scenario arises.

Tax withholding arrangements

When a 1099 employee engages with a client, they assume the responsibility to keep track of and pay self-employment tax and income tax to state and federal governments. The client is not obligated to withhold earnings or contribute to Medicare tax and Social Security tax as they would for employees. Contractors will need to pay this themselves.

For more tax information, check out our complete guide for independent contractor taxes.

Workers’ compensation

If an independent contractor has an accident and is injured while working, a client company doesn’t have to pay compensation benefits. However, contractors in some states can contribute to a state workers’ compensation fund to protect against such situations.

Vacation or paid holiday

Contractors are their own bosses, which means they can take time away from work whenever they want. However, no work means no pay. Therefore, the contractor must set aside money for vacations and holidays so that they can take the time off they need.

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Clients must treat independent contractors as collaborators

Independent contractors comprise a large portion of the global workforce and are true collaborators in a company’s mission and success. Their integralness has led many business owners to provide contractors the same benefits as their employees to ensure they feel valued, remain productive, and deliver the desired results.

Join the Deel Community

If you’re a contractor, we invite you to join the Deel community, a one-stop platform for collaborating, networking, and supporting global workers.

Discover contractor community meetups in your neighborhood, get quick access to vetted resources, webinars, and exclusive perks, and connect with thousands of members worldwide to discuss topics such as immigration, traveling, working remotely with kids, and finding work-from-home jobs.

Treat contractors right with Deel

If you’re managing a workforce with contractors, consider using Deel. Deel is a global HR and payroll platform enabling companies of all sizes to hire, manage and pay contractors and employees worldwide.

Contractors benefit from compliant and localized contracts, more than 15 payment options in 120+ currencies (including crypto), automated invoicing, and in-app support. Hiring companies avoid compliance and misclassification risks and save 86 hours of HR admin every month.

Book 30 minutes with a product expert to learn more.