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IRS and State departments of taxation don’t like agencies (and freelancers) cheating on their taxes.
Before the crackdowns, agencies happily did 1099 for individual freelancers, despite making these freelancers work on a regular schedule, report to a boss, etc. The agency didn’t have to pay employer taxes.
Exactly. The entertainment industry was the first to crack down on 1099s in California. A lot of freelancers depended on it. But the minute the state said they need to become employers cause agencies were skipping out on paying health benefits, they were forced to bring on everyone as W2.
Subject Expert
Agencies only do what best for themselves. My guess is there’s probably a financial tax benefit making it cheaper for them to “employ you” on the books (and not be required to provide you with benefits), than if they brought you on as a vendor. Don’t quote me on that though.
It’s not up to the agency sometimes, it matters if they’re under a parent company, but one of the reasons we would say is that because they have the same job title as a full-time employee, it somehow affects the legality or tax reasons. I don’t know, but trust me we would have loved to do 1099, I hated telling people we were W2. It seems like only small agencies do 1099.
Tax benefits for the agencies…. Just to repeat the larger agencies will almost always only offer W2… because their systems dictate that… why would you pay gross amount at end of 30 days versus gross to vendor + state end of the Q.. in this way they get to hold a % of their payments for another (90-30) 60 days…that they can get interest on…
A lot of times freelancers don’t have their entities set up the right way. You need to be an s-corp with insurance and workers comp to your package. Not just an LLC. Any agency that’s employing you as a vendor will ask that. If you don’t have those things, you’ll always default to a w2 company
I’m the boss they make the report too. If the agency is set up as a corporation, that’s what we ask of all of our contract partners, freelancers and vendors. If they don’t have that, we bring them on as W2. This is how we do it in California. And many other agencies that I’ve partnered with do the same.
Blame the IRS.
Some states are very aggressive with what classifies an employee versus I dependent contractor. California’s AB5 is one such law, and is itself a kafkaesque joke. Intended to stick it to Uber and Lyft but then they weaseled their way out and it ended up getting stuck to… everyone else.
So some companies just don’t want to deal with it.
Agencies can do whatever they want. If they want or need you they will do 1099.
There’s a bowl for freelancing that answers this.