Can I fire a 1099 employee?

Yes, you can terminate 1099 employees. Contractors and freelancers are all 1099 employees — this title simply clarifies their tax filing status. 1099 employees manage their own income taxes. However, there are strict regulations for terminating 1099 employees so be sure that termination abides by the terms of the contract.

Understanding Contract Employee Termination (With Sample)

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As an employer, you may face a situation where you need to terminate a staff member’s employment contract. This task becomes even more difficult when the person in question is a contractor or freelancer and not an actual employee of the company. Firing contract employees requires a particular set of circumstances. Learn what constitutes a contract employee, review how to terminate contractors, consider tips for terminating contract employees, examine an example of a contract termination letter and see frequently asked questions about contract employee termination.

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What is a contract employee?

Contract workers, also known as contractors or freelancers, do not work exclusively for the company that hires them. Instead, they perform a specific task or project for a set period in exchange for a predetermined rate of pay. Contract employees work in myriad industries, performing a wide variety of jobs and services.

How to terminate a contract employee

If you need to fire a contractor, follow these three steps:

1. Review their contract

If you want to end a freelancer’s employment contract early, the contract must have a termination clause. Review the original contract and terms for early termination to see what the stipulations are for ending the contract earlier than originally agreed upon.

Related: How to Convert Contractors to Full Time Employees

2. Establish cause

Depending on the terms of the contract, you may or may not need to establish cause for terminating the contractor. If you do need cause, ensure the reason you’re firing the contractor aligns with one of acceptable causes outlined in the contract’s termination clause.

3. Write a termination letter

The best way to communicate termination is through a formal letter. Some contracts actually stipulate that notice of termination be presented to the contractor in writing. Review the specifics of the contract to ensure you’re abiding by all the terms as necessary.

Tips and best practices for terminating a contract employee

Use these tips and best practices to help you effectively terminate your contract employee.

Research.Ensure you’ve thoroughly examined the employment contract. You want to understand all the specifics involved in terminating the contractor so you don’t face any legal penalties later.
Consult a lawyer.Consider consulting a contract lawyer to advise you on the best way to draft and present your termination letter, particularly if the employment contract is complex.
Abide by terms.Keep to the terms outlined in the contract. For example, if the contract termination clause requires cause, provide cause for termination in your contract termination letter.
Keep it simple.There’s no need for your contract termination letter to have convoluted language. Keep it simple, straightforward and easy to read.

Sample letter for terminating a contract employee

You can refer to this example letter when drafting your own contract termination letter. Keep in mind that your industry or employment contract might require additional details:

Dear Mr. Johnson,

This letter serves as notice of employment termination as stipulated in the contract established on June 1, 2020 between Rock and Paper Manufacturing and you, Milo Johnson. Your contracted employment shall end on November 3, 2020.

Your contract was set to expire on December 2, 2020, but because of your breach of contract, we have decided to forego the rest of the contract. Please refer to the termination clause in the contract dated June 1, 2020, for further explanation.

Please return any Rock and Paper company materials, resources and tools you have in your possession before November 3, 2020. Once we’ve received all your outstanding supplies, we will issue your last paycheck.

Feel free to reach out with any final questions or concerns prior to your last day. We wish you the best in your future endeavors.

Sincerely,

Pam Bans

Human Resources Director

Related:What Does Terminated Mean?

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Frequently asked questions about contract employee termination

In most cases, you’ll need to provide cause when terminating a contracted employee. The best way to determine whether you’re within your rights to terminate a freelancer is to carefully read the employment contract, focusing particularly on any included termination clauses. Usually, if you need to present cause for termination, the contract will list appropriate causes for you to cite in your contract termination letter.

Occasionally, the project or job you hired a contract employee to perform is completed earlier than anticipated. Usually, you know in advance if an early conclusion is likely and include language in the contract preparing for that possibility. If the project or job outlined in the contract hasn’t been completed and there’s no reason to release the contractor from their duties, then it’s unlikely you’ll have legal grounds to end the contract. As always, review the specific terms of the contract to see what your options are.

Contract employee termination is more complex than traditional employee termination. Ensure you understand the specifics of the contract, particularly as it relates to termination, prior to signing the initial contract and prior to issuing a contract termination letter.