1099 vs W2 – Wondering which is better? In this post we are going to look at 1099 vs W2: Which is Better for Employee & Contractor in 2021.
Small business owners or newly set-in startups who are looking forward to hiring employees have two choices to pick- either a 1099 or w2.
One is hiring employees on a payroll basis, and the second choice is to directly hire contract freelancers to get the job done. In simpler terms, there are two ways to hire human resources for your business, that is, 1099 or W2.
Keep reading to know more about 1099 and W2, so that pick the best form of employment for your company.
1099 represents the independent contractor, whereas W2 represents the salaried employee.
The interesting part is on what basis does 1099 worker differ from a W2 worker. The W2 worker attends your office regularly and works only with your company.
The W2 workers take full accountability of the quality of work done for the company. For instance, the manager and reception staff are your W2 workers.
On the other hand, a 1099 worker has way more freedom than a W2 worker. A 1099 worker has the freedom to plan his schedule for the day.
A 1099 worker can work for more than one clients at one time. The 1099 worker does not need to work from specific office space to get the job done.
The 1099 worker can complete his work task from home, cafe or even a coworking space of his choice.
If you are planning to hire a W2 employee, you must ensure that you are paying them a salary, expenses on taxes, health insurance as well as paying for the unemployment insurance.
One of the most important factors is that it is more challenging to terminate a contract with a W2 employee as compared to a 1099 employee.
Henceforth, you must conduct the performance reviews of your W2 employee every year. The excellent part of hiring a W2 employee is the loyalty which they show toward the company.
A W2 employee tends to take full accountability for the quality of his work for the company.
Moreover, highly professional and skilled people prefer being hired on a W2 basis to enjoy the perks of being in the corporate sector, such as social stability and paid vacations offered by the company.
If you are planning to hire a 1099 worker, you might end up saving more money as compared to hiring a W2 worker.
You can save your money on taxes, retirement plans, and much more. The primary reason for hiring a 1099 worker is to get a specific job done, which requires a particular skill or expertise.
Independent contractors have an option to choose to work for clients who offer higher pay for getting the job done.
Most of 1099 employees do the work via online, that is, email or skype.
The employers do not have to pay for vacations or overtime work for 1099 employees, which could be a drawback for the 1099 worker.
There’s a possibility that an employer is not happy with the quality of work submitted by a 1099 employee at the end of the day.
Moreover, a 1099 employee can work for more than one client and is not bounded by any service agreement of one particular company.
More often, independent contractors are not an essential part of your company but just outsiders who are hired for a limited period when the need arises.
It’s definitely crystal clear that hiring a 1099 worker is way cheaper as compared to hiring a W2 worker for your company.
You can even hire a 1099 worker for roles such as receptionist and IT professional. If you want to plan for a longer-term, you might prefer working with a W2 employee who could play an important role in your team.
While choosing between hiring 1099 or W2 employee, you must ask three questions mentioned below:
1. What is the number of hours you want a person to work in a week?
You must hire a W2 employee if you think you need more than 30 hours a week to get your work done.
2. Is there a need for the person to be present at your office space for a full day?
Hire a W2 employee for your company if you need a person to be present at your office space for a full day.
3. What is your budget to hire a person for your company?
Independent contractors or 1099 workers charge way less than a W2 worker.
More and more people are switching to become independent contractors than W2 employee.
A 1099 worker has the liberty to charge on an hourly basis. A 1099 worker receives tax deductions such as business mileage, work phone, office expenses, and much more.
Henceforth, a 1099 worker pays much less tax as compared to a W2 worker. The major drawback of being a 1099 worker is the responsibility for paying health insurance, office equipment, and FICA taxes.
A 1099 worker is widely known to be having access to a much higher SEP-IRA deduction limit which gives them the liberty to invest a lot more on a pretax basis.
A 1099 worker can work with more than one client at one time and gain a higher income than a W2 worker.
Your professional skills or expertise play a major role in deciding whether you can work as a 1099 independent contractor or a W2 employee.
Majority of hired 1099 workers prefer working from home or co-working spaces than a regular office space.
A 1099 worker need not attend office space and work from anywhere. The employees must think carefully before choosing to work as a 1099 worker or a W2 worker for a company.
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