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The Difference Between A 1099 Employee And W2 Employee
There are some hard decisions that employers have to make when it comes to hiring employees. For a long time, there has been confusion whether workers are independent contractors or employees. Hiring a 1099 employee or a W2 employee each comes with their advantages and disadvantages.
When filing for taxes you need to make a distinction of whether your employees are W2 or 1099. You will use a 1099 form to file for taxes if you are a 1099 employee. This is because they are self-employed and get payment based on the terms of contract. As for W2 employees, they get benefits and wages from their employer. Their employers have total control in the work they assigned to them. Check stubs are not the same.
A 1099 employee relies on contracts which makes them fully independent. A 1099 employee is independent and works on different contracts. They have the option of flexibility because they determine their time to work and use their skills set. They are the ones who set the amount they wish to charge. They have the option of working for different companies. However, depending on the job they do their taxes can be withheld from their pay check.
The main benefit of hiring a 1099 employee is that you don’t have to pay them benefits. In comparison to W2 employees it costs less to hire them. The greatest advantage is that you hire them only when necessary. They have a lot of training.
The con of hiring an independent contractor is that at times your interests may differ. The contracts are also binding which means as an employer you cannot fire them since you will have breached the contract. Also, because the company does not provide insurance cover for 1099 employees, in case of any injuries they may sue the company.
A W2 employee is one who an employer takes time to train, offer the necessary tools for working, provides benefits and pays them regular salary. As an employer you have the right to withhold taxes and set rules and regulations for work.
The benefit of W2 employees is that they are committed to their work. You can count on them on busy time by having them work late when necessary. You have total control of their schedules.
The con is that training and managing the W2 employees is not an easy task. You will have to keep motivating them for top performance. As an employer, you will be required to offer them the needed tools as well as the workspace. It is your responsibility to pay for their Medicare taxes, sick leave, social security, wages and other benefits.
Many employers get caught misclassifying employees as being independent workers as opposed to being full-time. This can cause harsh penalties. You need to be able to distinguish between the two. To avoid confusion, ensure you know the IRS requirements.
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