A software engineer who signs on as a 1099 contractor does not hand over the code she writes just because the company paid for it. Federal copyright law defaults ownership to the person who wrote the code unless a signed agreement says otherwise, and plenty of tech companies find that out only after a contractor has already left. Most W-2 vs. 1099 decisions for remote engineers get treated like a payroll checkbox: pick 1099 to save on tax, pick W-2 once the role looks permanent. That shortcut skips two questions unique to engineering hires that a generic classification test never asks, and that a compliant Employer of Record (EOR) relationship can solve before either one becomes a problem.
Why Equity Requires W-2 Status
Tech companies use equity to win engineering candidates they cannot outbid on salary alone, and the tax code will not let that equity work the way HR expects if the engineer is a 1099 contractor. Incentive stock options, the type most engineers want because gains can qualify for capital gains treatment, exist under Section 422 of the Internal Revenue Code, which requires the recipient to be an employee both at the moment of grant and through most of the exercise window. A contractor can still receive stock, but only nonqualified stock options, which get taxed as ordinary income at exercise and carry none of the ISO holding-period benefit.
However the offer letter labels the arrangement, Section 422's employee requirement still applies. If equity is part of the offer and the plan calls for ISOs specifically, the engineer needs W-2 status before the grant date. Waiting until the relationship feels more permanent is already too late.
Who Owns the Code a 1099 Engineer Writes
The second question is ownership, and it is the one most legal teams forget to ask. Copyright law treats work created by an employee within the scope of employment as automatically owned by the employer. Work created by an independent contractor gets no such automatic transfer. The definition of a "work made for hire" under federal copyright law only extends to contractor work in nine narrow categories, things like a translation, a compilation, or a contribution to a collective work, and a computer program is not one of them.
That means the code a 1099 engineer writes belongs to the engineer by default. A company only secures ownership through a signed intellectual property assignment agreement: drafted correctly, executed before the work begins, and kept on file alongside the engineer's other onboarding paperwork. Skip that step, or draft it loosely, and a departing contractor walks away holding a legitimate ownership claim to code the company has already shipped to customers. If a misclassification dispute later challenges the 1099 relationship itself, the assignment agreement built on top of it can unravel with it, and a payroll question turns into an intellectual property question overnight.
The Test Both Questions Sit on Top Of
Both questions layer on top of the ordinary classification test. The IRS still asks how much control a company exercises over how the work gets done, and the Department of Labor still asks a parallel economic reality question about dependence and opportunity for profit or loss. A remote engineer who works set hours, uses company-issued equipment, and reports to a manager looks like a W-2 employee under either test. Equity and ownership questions do not change that. For the mechanics of that baseline test and how it interacts with the state where the worker actually sits, FoxHire’s classification framework for remote hires lays out the full analysis.
Most roles never get past that baseline test. Engineering hires do, because equity and code ownership sit outside the control test entirely, and either one alone is often reason enough to hire the engineer as a W-2 employee instead of a 1099 contractor.
What a Misclassified Remote Engineer Costs a Tech Company
Getting the classification wrong does not surface immediately. It shows up later, as a state unemployment claim, a wage complaint, or an IRS notice asking why a worker who looks like an employee received a 1099. Enforcement posture on this shifts with the administration in charge. The Department of Labor spent 2024 under a rule that leaned toward employee status. In 2025, it told investigators to stop applying that rule to new matters and rely instead on older guidance that gives employers more room to classify a worker as a contractor under federal wage law.
State law did not move with it. California, Massachusetts, and New Jersey still apply an ABC test to wage claims that presumes every worker is an employee unless the company proves otherwise. A remote engineer working from any of those states carries that presumption regardless of which way the federal rule leans at the moment. A tech company hiring engineers nationally cannot pick one classification standard and apply it everywhere.
The financial exposure a misclassification finding creates compounds fastest for companies that never wrote down their reasoning for each hire. Closing that gap, and building the paper trail behind each hire, is exactly what a compliant EOR does as part of how the engineer gets hired in the first place.
Remote or not, an engineer's classification carries an equity decision and an ownership decision that a bookkeeper's never does. Get the W-2 call right before the offer goes out and the code starts shipping. FoxHire hires the engineer as a W-2 employee in whichever state they sit, so the equity vests clean and the IP is actually owned. Book a demo to walk through how that fits your next engineering hire.
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FAQs
Find answers to common questions about our services and the contingent workforce management.
Can a 1099 contractor get stock options at a tech company?
Yes, but only nonqualified stock options. Incentive stock options require employee status under the tax code, so a contractor who wants ISO-level tax treatment needs to be hired as a W-2 employee before the grant date, not after the relationship is already underway.
Who owns code written by a contractor if there's no signed agreement?
The contractor does, by default. Federal copyright law only transfers ownership automatically for employee work, and a contractor's work only counts as a work made for hire in a handful of narrow categories that do not include software. Without a signed assignment agreement, the company has no automatic claim.
Does hiring an engineer remotely change how they should be classified?
Not on its own. The classification tests weigh control, dependence, equity, and IP. None of that turns on where the desk sits. Remote work does add one wrinkle: the law of the state where the engineer physically works usually governs, not the state where the company is headquartered.
Which states are strictest about classifying engineers as contractors?
California, Massachusetts, and New Jersey apply an ABC test to wage claims that presumes a worker is an employee unless the company proves otherwise. A remote engineer working from any of those states carries that presumption no matter where the company itself is based.
Can an Employer of Record hire engineers as W-2 employees on a company's behalf?
Yes. An EOR becomes the legal employer of record for the engineer. It handles payroll, tax withholding, and compliance in whichever state the engineer works from. The hiring company continues directing the engineer's day-to-day work.
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