What’s the difference between 1099 and W2 for SLPs?

Before you accept any job, you need to understand the difference between being:

• An employee (who is issued a W2 tax form), or
• A contractor (who is issued a 1099 tax form)

Why is this important? Well, not understanding the difference between 1099 and W2 roles could lead you to:

• Misestimate your take-home pay by up to 40%.
• Easily miss thousands of dollars per year in tax benefits.
• Agree to work tasks and roles you’re not legally supposed to do.

Yep, it’s that important. Let’s get into it!

What’s the difference?

The simplest explanation is that 1099 contractors are NOT company employees (like the W-2 folks), they're business owners.

Seriously. The American legal and tax systems treat you as a business owner when you sign 1099 contracts. You are not anyone’s employee. Instead, you are independently contracting your services (your business) to other businesses.

Here’s what that means for you:

If you’re an SLP contractor (1099):

• You invoice your workplace for your services. 1099s are not paid a salary. Instead, you have a mutual contract with your workplace that sets your rates, which could be per visit, hourly, or a flat rate for a task. Some companies will require you to send them an invoice, like a bill for your services. Other companies will require you to report hours (or clients or tasks), and they’ll auto-pay you based on that.
• You aren’t eligible for raises. Instead, you tell the company you’re contracting for when you’re due for a contract increase. You set the terms of the contract, not them. They’ll have requested terms as well, but contract changes aren’t supposed to come only from them. Contract changes, including increase of rates, are supposed to come from YOU because you’re the contractor and therefore the boss of yourself. They can, of course, say no. In this case, you’re bound by any existing contracts until they end (and all 1099 contracts should have terms for ending them).
• You will not have taxes withheld from your paycheck. Instead, you’re responsible for paying them quarterly or annually. This means you’ll need to set aside money from your paychecks for taxes. The exact percentage varies per state, but it’ll be around 30%. Paying quarterly helps you avoid the fee that can come from only paying at tax time each April. We highly recommend consulting with an accountant if you’re doing full-time 1099 work.
• You’re not only responsible for paying your own taxes, but MORE taxes, because 1099s pay both the employee and the employer portion of payroll taxes. So add 7.65% of your annual pay for taxes as a 1099.
• You buy your own job supplies. But because a 1099 is taxed like a business, you also get to write these job supplies off—yay! You’re going to need to get good at understanding write-offs to know what can and can’t apply (again, get an accountant!). But expect to also be able to write off travel or mileage, office expenses, and even things like a portion of your home bills (if you work from home doing telehealth and it’s therefore an “office”) or a portion of your cell phone bill. Can’t say this enough times, but we highly recommend consulting an accountant if you’re doing full-time 1099 work or if it’s a significant portion of your income! And you’ll probably get to write that off as a business expense, too. Nice.
• You DO NOT get benefits. No PTO, sick leave, health insurance, 401K, or anything else.
• You must carry your own professional liability insurance. Because you’re not an employee of the company, you’re probably not covered under their plan.
• You may be responsible for things that otherwise fall to the company—like keeping client records for several years past dismissal.
• You aren’t paid when clients cancel or miss sessions.
• Most employment and labor laws don’t protect you, because you aren’t an employee. However, if your employer has misclassified you (put you on a 1099 contract while treating you as a W2), they DO still have to adhere to labor laws.
• You don’t have to do “employee things” like attending meetings, being subject to performance reviews, or doing training or continuing education through the company. Your company CAN give you feedback and discuss best practices with you. But otherwise, contractors are there to do a specific job, and that’s it. Remember—you’re your OWN boss, and unless something is in your contract and you’re paid for it, you don’t have to do it. Read more about your rights as a 1099 here.
• New grads: You cannot be a CF (clinical fellow) and 1099 in most scenarios, nor will you be eligible for PSLF (Public Student Loan Forgiveness). It’s the required supervision, inability to independently bill insurance, and the fact that in many states you have a provisional license that makes the CFY incompatible with classification as 1099 work. Remember– 1099s are separate business entities from their employer. And many new grads also don’t want that legal responsibility.

If you’re an SLP employee (W2):

• You have taxes withheld from your paycheck, and your employer pays a portion of your taxes.
• You’re eligible for benefits (e.g., 401K, Health Insurance, PTO) if the company provides them and you fit their internal eligibility criteria.
• You may not need professional insurance, as you’re more likely to be covered under your employer’s plan.
• You do not need to pay for your own job supplies, including assessment and treatment materials, office supplies, and anything else required to do the job. Yes, we know some SLPs still buy their own stuff anyway because their employer doesn’t give them a high enough supplies budget to do the job well. But that’s another conversation…
• Your employer determines when and how raises and advancement occur. They usually have policies related to this because they legally must ensure it’s done equitably.
• You’re protected by federal and state labor laws (these vary by state). Many of these laws apply specifically to employees but not always to contractors (e.g., those related to employee discrimination).

Who makes these rules?

To determine whether you should be designated as an employee or contractor, your employer (and the IRS) look at three rules: behavioral, financial, and type of relationship. The federal and state governments also have laws that apply specifically to employees but not always contractors. AND (here’s the fun part…) each state’s laws are different, and they’re often more strict than either the IRS or federal government. For example, in California, it’s illegal for a 1099 SLP to work for full-time for one company. In other states, companies can legally contract full-time 1099 SLPs.

What happens if my employer does this wrong?

First, make sure you fully understand all this so you know your rights and what you can ask for. Here are some good articles to read:

• Difference Between an Independent Contractor and Employee or 1099 vs. W-2 and How this applies to SLPs
• “What you don’t know could cost you”
• Fair Labor laws and how it applies to 1099 vs. W2s
• Myths about Misclassification, from the US Department of Labor
• (In)dependent Contractor Missclassification

Next, make sure to get everything in writing. Create a paper trail by asking your employer the questions via email and having them respond via email. Alternatively, if you’re meeting face-to-face or by Zoom or phone, simply email your employer afterward a bullet-pointed list of what you understand from the meeting, and request that they confirm in writing (email).

If at this point you believe something is off, read more on what to do if you’re being misclassified and what the federal government says. You’ll take the following steps if you’re not able to simply resolve it with your employer:

• First, you’ll go to your state employment agency. If your employer misclassified you as a 1099, they owe your state money, and the state will follow up on this.
• Then, you’ll go to the IRS. Form SS-8 is what you’ll want to look into (preferably with an accountant).

Finally, know that the 1099 vs. W2 classification can have some gray area. You may find things about your job resembling W2 work, and other things resembling 1099 work. There is no magic number of “things” that trigger misclassification. And if the scales do tip toward the 1099 side, you might not be misclassified, and simply need to clarify responsibilities with your employer.

Why would my employer get this wrong? Are they doing it on purpose?

Most employers don’t mess this up because they know it’s important—for you and them.

However, some do, and there are enough employers doing this wrong that SLPs must understand it ourselves.

First, it’s important to assume good intent, and that the error is simply a lack of knowledge on your employer’s part. Consider that you would expect your employer to assume the same of you—that if you make a mistake, you simply didn’t know better. Not that you’re willfully acting illegally or negligently.

However, sometimes it is purposeful. Employers may misclassify employees as independent contractors because it’s cheaper and easier, saving them tens of thousands of dollars per year in labor, costs, and liability. Ultimately, it’s in everyone’s best interest to get it right because misclassifying an employee as an independent contractor can result in hefty fines for the employer.

So what does all this mean for me financially?

There can be significant differences in income as a W2 vs. 1099! This is why, when you’re comparing jobs, you should always start with the classification of 1099 vs. W2 before deciding whether the pay is adequate.

We cannot emphasize this enough: you cannot directly compare 1099 and W2 pay!

Ready to learn about the financial differences? Let’s proceed with our next SLP Career Advice: “How do I know if a job has good pay?”