The decision between hiring 1099 contractors or W-2 employees can significantly impact both the employer and employee, so both parties must understand the differences.
1099 contractors are considered self-employed and are liable for their taxes, including Social Security and Medicare. This means that, as an employer, you do not need to withhold taxes, contribute to unemployment insurance, or pay payroll taxes for contractors. This can save small businesses money and reduce the administrative burden of managing taxes and benefits. It also means that the 1099 employee must bear the weight of that responsibility.
1099 contractors typically work on a project basis. This provides small businesses with flexibility in managing their workforce and allows businesses to scale up or down depending on demand. It also provides 1099 employees with the freedom to choose different roles. The flexibility, freedom, the potential for higher earnings, and the opportunity for greater autonomy are all factors as to why people choose the 1099 route.
W-2 employees tend to be more integrated into the company culture, they are often more invested in the long-term success of the business. This can lead to increased loyalty and productivity, which can be particularly beneficial for small businesses looking to grow and establish a strong foundation. On the contrary, 1099 employees do not get inundated with politics or employee banter and can hop in, do the work, and hop out.
Due to the vast differences between each classification and the nature of the work, employees and employers must understand the best option for their business and career.