As a small business owner, you may be wondering if it’s better to hire W2 employees or 1099 independent contractors.
There are pros and cons to both arrangements, and the best option for your business will depend on a variety of factors. In this article, we’ll take a closer look at the two types of arrangements so that you can make an informed decision for your business.
W2 Employees
Pros: W2 employees are considered “employees” for tax purposes, which means that you as the employer are responsible for withholding federal income taxes, Social Security taxes, and Medicare taxes from their paychecks.
You will also need to pay unemployment taxes on their wages. However, W2 employees are entitled to a wide range of employee benefits, including health insurance, paid vacation days, and retirement benefits.
Cons: The biggest downside to hiring W2 employees is that they are more expensive than 1099 contractors. In addition to paying their salary, you will also need to pay payroll taxes and employee benefits.
1099 Independent Contractors
Pros: The biggest advantage of hiring 1099 contractors is that they are generally less expensive than W2 employees. Because 1099 contractors are considered “self-employed,” they are responsible for paying their own federal income taxes, Social Security taxes, and Medicare taxes. This can save you a significant amount of money as an employer.
Cons: One of the biggest disadvantages of hiring 1099 contractors is that they are not entitled to any employee benefits, including health insurance, paid vacation days, or retirement benefits. In addition, because they are considered self-employed, they are not eligible for unemployment benefits if they lose their job.
The decision of whether to hire W2 employees or 1099 independent contractors depends on a variety of factors and it comes down to the IRS guidelines. The most important thing is to make sure that you understand the pros and cons of each arrangement and that you’re following the rules.
