1099 VS W-2 Employees: Which Should You Hire?

The classification must always be made on the basis of whether the worker meets federal and state tests for independent contractor status. Different tests are used to determine whether a worker is covered by a particular law or benefit. This means that bookkeeping for startups if you hire 1099 workers, you don’t need to pay payroll taxes on their behalf. You also aren’t required to provide them standard employee benefits, such as PTO and sick leave, or contribute to their health insurance coverage or retirement plan.

In the designer example above, we could certainly have spent less on a freelance designer, or even multiple freelancers. But when it became clear that our visual brand was core to our business and we wanted more control and consistency over it, we hired a full-time employee. Unlike a 1099 worker, W2 employees cost a business much more than their annual salary because the employer pays a share of taxes, https://marketresearchtelecast.com/financial-planning-for-startups-how-accounting-services-can-help-new-ventures/292538/ benefits, and equipment. The expense of a W2 employee can vary based on the state where the business is located and where the employee lives (this can be a hidden cost of remote work for some businesses). Usually, independent contractors charge more per hour but cost you less in the long run, because you pay for them as they complete specific work for you (which does not happen regularly).

vs W2: Which is Better for Your Business?

Figure out how much each option will cost you, and pick the least expensive one. If someone is doing work that is non-essential to your business (like graphic design, copywriting, accounting, etc.) hiring a 1099 to do it can be cheaper, quicker and less of a regulatory burden. W-2 job postings tend to attract higher-quality applicants who are more willing to commit to your business for the long haul. Because they aren’t constantly looking for other work, they can also focus better on the task at hand. In recent years, the IRS has been known to automatically investigate the independence of 1099s that report more than $10,000 in income, using an algorithm.

Our best expert advice on how to grow your business — from attracting new customers to keeping existing customers happy and having the capital to do it. For further guidance, you can also ask the IRS to make a determination for you by filing a Form SS-8. And there’s no possibility of any additional extension of time to file.

What Is A W-2 Employee?

Minimum wage laws, required sick and leave time, overtime restrictions are but a few. The line between a W-2 employee and a 1099 contractor may seem blurry, but the most important difference is whether your business must withhold taxes from a worker’s payments. Every small business owner should understand the differences between these classifications and when to hire a W-2 versus a 1099 worker. Let’s take a closer look at each classification when it comes to both forms and workers. If you’ve identified that bringing on a contractor makes the most sense, it’s important to further understand who a 1099 worker is.

The posting later indicated that if economic conditions and business growth are good, after the marketing strategy is launched they may have a full-time marketing opening. In broad strokes, a 1099 independent contractor is the flip side of a W-2 employee. If you’re still having trouble determining which type of IRS classification your workers fall under, it’s better to be safe than sorry. Fill out Form SS-8 and send it to the IRS to determine the status of your workers to avoid the costly mistake of misclassifying employees.