By claiming you are an independant contractor rather than an employee, your employer is benefiting in several ways. For one thing, they escape the headache of paying payroll taxes altogether. Many of those taxes would otherwise be deducted from your income, so your employer saves on accounting. Some of those taxes, however, are actually charged to the employer, including state and federal unemployment taxes. Taxes like Social Security and Medicare also usually require the employer to chip in. Paying you as an independent contractor means that the employer is not only not chipping in half of you Social Security and Medicare, but also that they are not collecting your half of it from the check. Because of the way you are paid, you are now required to cover both halves when you file your tax return. This is called Self-Employment Tax. Your employer is also not deducting your state and federal (and local and school district, if applicable) income taxes from your pay, meaning that you should be making quarterly estimated payments. On top of all that, your employer may be required (depending on your state) to carry worker's compensation insurance on employees. If you are not classified as an employee, they get to skip out on that as well. If you truely are an independent contractor, then there is nothing wrong with the way you are being paid, but you do want to make sure that you are paying enough quarterly estimated taxes to cover your tax bill to avoid a nasty suprise with penalties at the end of the year. If you really should be classified as an employee, your employer is breaking the law. Not only are they shortchanging you on Social Security and Medicare taxes, but they are shortchanging the entire system of other taxes they must pay, and skipping out on other employer/employee relationship requirements as well, such as providing FMLA leave and much more. If you use your own equipment and have control over how you operate your business (if you really are an independent contractor, then you are a business) then the arrangement is probably legal. If, on the other hand, you use equipment provided by the employer (that you don't reimburse them for) and you do not have control over how you do your job, then you should be classified as an employee and your employer is breaking the law.

1099 means you are not an employee and your are self employed.

Its been more than 10 years since I had employees so these numbers may be a little off but close. A 1099 instead of a W-2 means he saves paying half your Social security & medicare tax = about 7.6% + another 6% for unemployment insurance & 1.6% for workers compensation insurance. So if he pays you the equivalent of $20 per hour as an 1099 independent contractor he would have to pay an actual W-2 employee $23 for the same work. Plus a W-2 employee would be covered by workmans comp if he got injured on the job & the W-2 employee could also draw a weekly unemployment check if he were laid off. Whereas you are strictly on your own if you get hurt or are laid off.