The 1099 Conundrum

Don't get me wrong. I've worked contract for a long time (at this point, when you hire me, you hire my company, who pays me.) And I am a strong advocate for the proper use of 1099 positions. But the pandemic is pointing out a lot of holes with that status (well, ok, the pandemic is calling into question pretty much all of our systems, but I digress.)

Do you know why payroll tax deductions exist? They started in 1913, with the 16th amendment that created income tax (actually passed in 1909, we don't know what they were doing for four years). But the government soon realized that levying a tax and collecting it were two different things, and when FICA was added to help with social systems during he Depression, the government simply had to collect a higher percentage of taxes, faster. Thus, payroll tax deductions were established, to put companies in charge of withholding and paying taxes rather than individuals. And thus was born the differentiation between W-2 and 1099 workers. 

(I'm painting all this with a broad brush, folks, stay with me).

But 1099 positions continued, and actually became a growing percentage of workers as we added in uber drivers and other service worker to the more common contractors such as construction and entertainment. In 2017, the Bureau of Labor Statistics found that 34% of the workforce was a contractor in the "gig economy," and that was expected to be close to half the workforce by 2020.

"Was expected to." And then it all changed.

It started early last year with unemployment. I noticed it immediately after the lockdowns started; 1099 workers were filing for unemployment and citing their contracts as "employment" and the UI system was getting very tangled, very fast. I lost count of the number of "This person has filed for unemployment and listed you as an employer, but you don't list them on your quarterly reports" notices I received. The very people who worked gig to gig were the first ones not getting any help. And although PUA actually fixed that situation fairly quickly (at least in the grand scheme of things), we don't know what the long-term repercussions will be. If and when we go back to "normal," will 1099 payments be added to UI-calculated wages? Or how will they be treated in the future?

Then we moved on to programs like FFRCA, which was paid leave if you get sick or need to care for someone who is, subsided by the government by a reduction in payroll taxes, so for W-2 employees only. PPP? Based on payroll employees; contractors don't count (though the regulations did get amended so they could get their own.) Employee Retention Credits? Note the first word is "employee."

It's almost the identical situation with vaccines. As we move on to Phase 1B and 1C of the prioritization, we start including more essential workers such as childcare workers, media, IT, and construction. But that's where the line gets a lot blurrier, because these are a great number of these people don't work in traditional W-2 jobs. Many of them — many of the writers interviewing you, the music teachers that go into classrooms, the people who build your cloud servers or your home — are all 1099 workers. As one of my clients said today "If you get sick, our payroll goes down." But how do we prove employment in these fields? At least in the current system,  1099 contractors are not accounted for in the prioritization; it's like we don't exist.

It seems like we are running into this wall, again and again, like some cartoon character with a box over our heads, when what we really need to do is tear it down.