W2 Employee vs 1099: Which is Better For Your Business Needs?

1099 Sep 24, 2021

With 10.9 million job openings nationwide, businesses across the U.S. are in great need of workers. Businesses can decide to hire a W2 employee or a 1099 contractor, but which is better for your business? In this article, we will break down the pros and cons of W2s and 1099s, the main differences, and which one could be better for you.

What is a W2 Employee?

A W2 employee is a worker hired by a company that becomes the employee and responsibility of the hiring company. Employers are responsible for training and coaching their employees to complete the task they were hired to do. W2 employees can be part-time, full-time, seasonal, or temporary.

What are the Pros of Hiring a W2 Employee?

  • Quality Employees. This is not always the case, but employers can attract high-quality workers by offering an attractive benefits package and other perks. High-quality workers can lead to better business outcomes for you.
  • More commitment. If an employee has a desire to do the work they applied for and believes in the company mission, employees can be very committed to your business.
  • More control. Hiring employees gives you more control over their actions because you specifically dictate what is and is not acceptable behavior.

What are the Cons of Hiring a W2 Employee?  

  • Higher cost. Hiring employees means you need to pay for their benefits (paid time off, sick leave, etc.), hire an HR manager, and carry workers' compensation insurance. All of this can become very costly depending on the number of employees you have.
  • Increased legal complications. The more employees you hire, the more legal complications can arise from workers' compensation claims, wrongful termination suits, and others.
  • Time consuming. Employees need to be trained and coached if you want them to be productive members of your business staff. This takes valuable time away from other duties you have.

What is a 1099 Contractor?

1099 contractors are hired to do a specific job. They can be hired on a short-term basis or a long-term basis. 1099 contractors are considered sole proprietors because they essentially work for themselves; they are not employees of the businesses they perform work for. They can perform work for multiple companies simultaneously.  

What are the Pros of Hiring a 1099 Contractor?

  • Specific expertise. Generally, 1099 contractors perform very specific and specialized tasks (writing, web development, bookkeeping, etc.). They are also competing against other contractors (or freelancers) so they tend to be very skilled in their area of expertise.
  • No training required. Since 1099s are very skilled in their niche area, they can hit the ground running on your project without training.
  • Less expensive. 1099 contractors command a higher hourly wage, but given that employers do not pay for benefits or workers' comp, contractors and freelancers tend to be more cost effective than an employee.

What are the Cons of Hiring a 1099 Contractor?

  • Little stability. 1099 contractors can decide not to work with you once the job is done and they typically work with multiple companies at the same time. As a result, may need to hire multiple contractors or freelancers to fulfill your need.
  • Weaker Relationships. Because they work remotely, they will rarely, if ever, come to your physical place of business. There is little to no interaction with other employees, so work relationships tend to be weaker.
  • Non-traditional schedules. Some contractors work irregular hours and may not be available during traditional business hours.

What are the Main Differences?

Both W2 employees and 1099 contractors can accomplish the task you need completed (in many cases). Here is a quick break down of the main differences.

Which One is Best For My Business?

There are some positions that cannot be filled by independent contractors, but many positions can, and doing so can save your business money. Here are some more tips for your consideration.

You may benefit from a W2 if:

  • You prefer to have workers physically at your place of business
  • You want to cultivate a workplace culture
  • The position cannot be performed remotely in any way

You may benefit from a 1099 if:

  • The job can be done remotely
  • You prefer to save money on benefits and workers' comp expenses
  • The job doesn't require a "traditional" schedule

What Else Should I Consider?

Businesses across the country are looking to fill open positions and should consider whether or not to pursue a 1099 contractor. There are many pros and cons to W2s and 1099s, so weigh your options carefully. If you want more business insights and funding opportunities, join tens of thousands of businesses that receive small business grants and loans updates, and other news on our app.

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