Majority of employers have found themselves in a dilemma when 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. Such employees get paid based on the terms of the contract and are self-employed. A W2 employee get regular wages and benefits from their employer. Their employers have control when it comes to work. Check stubs are not the same.
A 1099 employee relies on contracts which makes them fully independent. A 1099 employee is independent and works on different contracts. They get to do their job when they want and they rely on their skills. They are the ones who set the amount they wish to charge. 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. In comparison to W2 employees it costs less to hire them. 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. As an employer you don’t have the option of firing them because you have a contract. Since companies don’t provide insurance cover or 1099 employees, in case of any injury they can sue you.
A W2 employee on the other hand, get regular salary and benefits from an employer. 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 benefit of W2 employees is that they are committed to their work. They can work late for you when needed. You can control their job description and working schedules as the website suggests.
The disadvantage of W2 employees is that it is not easy to train and manage them. You will have to keep motivating them for top performance. 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.
Majority of employers make the mistake of misclassifying their employees as independent contractors. This could result in harsh penalties. It is important you know the difference. Familiarize yourself with the IRS requirements to know more about taxes.