The Difference Between A W2 Employee And A 1099 Employee
Most employers have a hard task when deciding to hire employees. There has been argument as to whether workers are employees or independent contractors. Hiring a 1099 employee or a W2 employee each comes with their advantages and disadvantages.
It is important when you decide to file for taxes that distinguish whether your employees are 1099 or w-2 in the forms. A 1099 employee is required to fill a 1099 form. Such employees get paid based on the terms of the contract and are self-employed. A W2 employee get regular wages and benefits from their employer. Their employers determine the kind of work they do. 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 get to do their job when they want and they rely on their skills. They also charge an amount that they see fit. 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.
Hiring a 1099 employee has an advantage of not paying benefits. In comparison to W2 employees it costs less to hire them. They provide the flexibility because they are hired when necessary. They are also trained in their field.
The con of hiring an independent contractor is that at times your interests may differ. As an employer you don’t have the option of firing them because you have a contract. Since companies don’t provide insurance cover or 1099 employees, in case of any injury they can sue you.
A W2 employee is trained by their employer, get benefits and a regular salary. Employers can withhold taxes from W2 employees and allocate the type of work they are supposed to do.
The benefit of W2 employees is that they are committed to their work. You have the advantage of counting on them during busy times. Employers have total control over their job descriptions and schedules.
The con is that training and managing the W2 employees is not an easy task. Motivating them is necessary for increased productivity. It is your duty as the employer to provide all the necessary tools and workspace. You also need to pay their wages, social security, sick leave, Medicare taxes and other benefits.
Many employers get caught misclassifying employees as being independent workers as opposed to being full-time. This means that you may get harsh penalties. You need to make a decision of whether to hire a W2 employee or a 1099 employee. To avoid confusion, ensure you know the IRS requirements.