A sole proprietor, the simplest business structure, can engage independent contractors. These contractors are not considered employees and receive Form 1099-NEC instead of a W-2. This distinction means the business owner is not responsible for withholding income tax, Social Security, or Medicare taxes from their compensation. For example, a freelance writer hired by a sole proprietor photographer would be considered an independent contractor and receive a 1099-NEC.
This practice offers several advantages for small businesses. It reduces administrative burden and payroll costs associated with traditional employment. Historically, the rise of the gig economy and independent contracting has provided flexibility for both businesses and workers seeking project-based or temporary engagements. This arrangement allows sole proprietors to access specialized skills and services without the long-term commitment of hiring traditional employees.
