W-2 vs. 1099 Employees: Which Should You Hire?

The type of business you operate, the nature and objectives of the work required, the level of control you want to exert over the work, and your bottom line can all be factors in deciding which type of worker to hire.

Both can offer benefits and challenges, and the right choice will depend on your specific circumstances.

When should you hire a W-2 employee?

While hiring a W-2 employee can be the costlier choice, it may be the right one if your business is ready for continuity, consistency, and control over the work gets done.

Do you want your workers to develop loyalty, accountability, and mastery over the work? Do you need someone to show up to a set location according to your schedule and consistently execute necessary tasks? Then you should most likely hire a W-2 employee.

There are costs involved. Beyond wages, you will also have to pay your employee’s Social Security and Medicare taxes upfront, and you may need to provide benefits, such as paid time off or health insurance.

You will also have to provide all resources your employee will need to do their job, including skills training and tools. Training, managing, and motivating your employees can be an ongoing necessity, and terminating a W-2 employee can be more complex than a 1099 contractor.

There are valuable benefits as well.

Employees tend to be more loyal to a company, you have more direct say over their day-to-day work, and as they gain experience, they can add increasing value over time. This can manifest as a better work ethic, higher morale, a wider talent pool, and increasing returns on the initial training you provide.

There is a significant amount of friction in hiring, training, and managing new contract workers, so the continuity of W-2 employees drives down long-term costs.

When should you hire a 1099 contactor?

If the work required is inconsistent, seasonal, or short-term, you will most likely want to hire a 1099 worker.

Independent contractors typically fill specific task roles or do specialized projects. Work you will need regularly, but which will remain limited in scope and time, may also call for hiring a 1099 worker.

For example, most businesses’ bookkeeping is a regular function but may not take enough time each week to justify hiring a W-2 employee. (And just happens to be something we can take off your hands, contact us here to get started).

Outsourcing to an independent bookkeeper demonstrates another critical advantage of 1099 workers: specialized expertise.

While you are responsible for providing training and resources to a W-2 employee, independent contractors usually are already well-trained and experienced in the type of work you hire them to complete.

Finally, since independent contractors are self-employed (or employed by others) and do not work for you beyond the scope of the given project, you do not need to withhold or file payroll taxes nor provide benefits or overtime. The contractors themselves (or their employers) are responsible for paying their own self-employment taxes.

Naturally, there are potential disadvantages of hiring a 1099 contractor, too.

An independent worker…works independently! That means you have less control over when and how the work gets done. So if you have hired an independent contractor to work within a business staffed by W-2 employees, the result can become disruptive.

There are also legal considerations. If a 1099 worker suffers an injury on the job, you could be liable. And finally, when the job is complete and the contractor leaves, their specialized expertise goes, too.

That said, however, if you are an attorney, you would never hire and train a W-2 employee to fix an electrical issue or provide IT Consulting. The services of an independent contractor better address some jobs.