Do 1099 Contractors Need to Submit a Timesheet?

If you want the freedom of working as an independent contractor, get ready to maneuver a thicket of employment laws. Federal and state regulations govern independent contractors’ rights and responsibilities, including whether they must file timesheets to track hours. Whether a worker is a contractor or an employee determines whether a company must pay that worker’s Social Security and Medicare taxes. Businesses and workers who misunderstand or abuse contractor laws expose themselves to legal action and tax penalties.

Contractors who earn 1099 income do not need to submit timesheets. In fact, companies that require 1099 contractors to fill out timesheets might be violating contractor laws. According to the IRS, a worker is an independent contractor only if the company controls the end product or service, without determining when, where or how the contractor completes his work. If a business has the legal right to control or monitor specific hours, then the contractor is likely an employee. Other conditions businesses can’t place on contractors include what equipment to use, where to purchase supplies and whether to hire assistants to help with work. Companies that train contractors how to perform a specific task might also be breaking the law.

Businesses cannot control economic aspects of a contractor’s job. A contractor must be allowed to work on his personal equipment. He cannot claim reimbursements from the company for business expenses incurred during a project. He’s also free to seek out other business opportunities with competing companies, and he doesn’t receive a guaranteed or regular wage for an hourly or weekly period. If a business makes a worker use company equipment, reimburses expenses, prohibits side jobs or pays an hourly or weekly wage, that company treats the person as an employee.

Contracts stating the nature of a work relationship mean little to the IRS for determining contractor status. What counts, according to the agency, is how the business and the contractor work together. Companies pay for health insurance, retirement accounts, vacation and sick days for employees, but not for contractors. Also, company-contractor relationships have specific end dates, while companies expect relationships with employees to continue indefinitely. Finally, if a worker’s service is essential to the company’s function — an accountant hired to work at an accounting firm, for example — then the business has the right to direct her activities as an employee.

A business that retains a contractor does not withhold the contractor’s Medicare and Social Security taxes. That means it’s the contractor’s responsibility to pay self-employment taxes that cover federal retirement and health care benefits. Contractors can deduct half of their self-employment tax when tabulating adjusted gross income, while employees cannot deduct Medicare or Social Security taxes. If you believe the business you work for has labeled you incorrectly as a contractor rather than an employee, then the company could face serious tax liabilities and penalties. To clarify your status, file Form SS-8 with the IRS. The agency will review the form and officially determine your status. You can also file a wage complaint with your state department of labor, or hire an employment attorney.