The Difference Between A W2 Employee And A 1099 Employee
There are some hard decisions that employers have to make when it comes to hiring employees. There has been an ongoing debate for a long time as to whether workers are employees or independent contractors. Hiring a 1099 employee or a W2 employee each comes with their advantages and disadvantages.
When filling out tax forms, you need indicate if your employees are W2 or 1099. You will use a 1099 form to file for taxes if you are a 1099 employee. Such employees are self-employed and get paid depending on the contract. W2 employees receive their wages and benefits from those who have employed them. Their employers determine the kind of work they do. The check stub differ depending on the employer.
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 are the ones who set the amount they wish to charge. They do work for many businesses. This means that their taxes can be withheld from their pay checks.
Hiring a 1099 employee has an advantage of not paying benefits. You spend a less amount hiring them compared to W2 employees. You have flexibility because you hire them only when in need. They are also trained in their field.
The disadvantages of a 1099 employee is that there may be times when you will have a clash of interest. 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 greatest advantage of hiring W2 employees is that they become loyal to the company since they want to keep their jobs. You can count on them on busy time by having them work late when necessary. Employers have total control over their job descriptions and schedules.
The disadvantage of W2 employees is that it is not easy to train and manage them. Motivating them is necessary for increased productivity. It is your duty as the employer to provide all the necessary tools and 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 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.