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. For a long time, there has been confusion whether workers are independent contractors or employees. There are advantages and disadvantages as well as business implication that come with hiring a W2 employee and 1099 employee.
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 uses a 1099 form to file for their taxes. This is because they are self-employed and get payment based on the terms of contract. W2 employees receive their wages and benefits from those who have employed them. Their employers have total control in the work they assigned to them. 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 use their skills and can work at their own time. They also charge an amount that they see fit. They do work for many businesses. However, depending on their pay check their taxes can be withheld.
Hiring a 1099 employee has an advantage of not paying benefits. You spend a less amount hiring them compared to W2 employees. They provide the flexibility because they are hired when necessary. They come highly trained in their specific fields.
The cons of hiring a 1099 in may have a clash of interest. You will also not be able to fire them anytime you want because the contract is binding. In addition, in case they get injured on your premises, they have the right to sue you.
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. 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. They can work late for you when needed. Employers have total control over their job descriptions and schedules.
The disadvantage is that it is not easy to train and manage W2 employees. You will have to keep motivating them for top performance. 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.
Majority of employers make the mistake of misclassifying their employees as independent contractors. This could result in harsh penalties. You need to make a decision of whether to hire a W2 employee or a 1099 employee. Familiarize yourself with the IRS requirements to know more about taxes.