The Difference Between A W2 Employee And A 1099 Employee
Most employers have a hard task when deciding to hire 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 is required to fill a 1099 form. Such employees get paid based on the terms of the contract and are self-employed. 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 vary based on the employer.
A 1099 employee is fully independent and has contracts for specific jobs. They use their skills and can work at their own time. They charge a cost that they find suitable. They do work for many businesses. However, depending on their pay check their taxes can be withheld.
The advantage of hiring a 1099 employees is that they don’t get benefits. It is also cost-effective to pay them compared to W2 employees. They provide the flexibility because they are hired when necessary. They come highly trained in their specific fields.
The con of hiring an independent contractor is that at times your interests may differ. 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 trained by their employer, get benefits and a regular salary. As an employer, you can withhold taxes from such an employee and tell them the work they are supposed to do by setting rules and regulation.
The advantages of having W2 employees if that they are loyal to the company because they want to have their jobs for a long time. You can count on them on busy time by having them work late when necessary. You have total control of their schedules.
The disadvantage of W2 employees is that it is not easy to train and manage them. You need to dedicate time to keep motivating them for more productivity. You also have to provide the workspace and the necessary tools. 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 can cause harsh penalties. You need to make a decision of whether to hire a W2 employee or a 1099 employee. Check the IRS requirements to learn about the taxes and avoid confusion.