Q: Can the same person be both an employee and an independent contractor?
A: According to IRS guidelines, it is possible to have a W-2 employee who also performs work as a 1099 independent contractor so long as the individual is performing completely different duties that would qualify them as an independent contractor.
Some legitimate examples that we have seen of this circumstance include:
• A receptionist who also owns a cleaning service business with their spouse. The company contracts with the team to perform janitorial services after hours for the office.
• A sales manager who also performs graphic design work for several local businesses after hours. The company contracts with the individual to create a new logo for the company.
•A maintenance technician who also owns a fabricating business of their own. The company contracts with the individual to fabricate equipment for the company.
An employee owning their own business is not a requirement, but rather one of the factors to consider when determining if someone may be properly classified as an independent contractor. If you feel confident in the IRS criteria on the whole, you may classify their separate work as independent contractor work. But, be sure! It is widely believed among tax professionals that having a worker receive both a W-2 and 1099 increases the likelihood of an IRS audit.
As of September 18, 2017, U.S. employers are required to use the latest version of the Form I-9 — a key federal document used to verify the identity and eligibility of people hired for employment in the United States. Download this free guide for a step-by-step look at how to properly complete, file, and retain your I-9s so you’ll be prepared in the event your organization is audited.