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.
When filling out tax forms, you need indicate if your employees are W2 or 1099. You will use a 1099 form to file for taxes if you are a 1099 employee. This is because they are self-employed and get payment based on the terms of contract. As for W2 employees, they get benefits and wages from their employer. Their employers have total control in the work they assigned to them. The check stub differ depending on the employer.
A 1099 employee is fully independent and has contracts for specific jobs. They have the option of flexibility because they determine their time to work and use their skills set. They are the ones who set the amount they wish to charge. They can also choose to work for more than one company. 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. You have flexibility because you hire them only when in need. They are also trained in their field.
The disadvantages of a 1099 employee is that there may be times when you will have a clash of interest. As an employer you don’t have the option of firing them because you have a contract. In addition, in case they get injured on your premises, they have the right to sue you.
A W2 employee is trained by their employer, get benefits and a regular salary. Employers can withhold taxes from W2 employees and allocate the type of work they are supposed to do.
The benefit of W2 employees is that they are committed to their work. You can count on them on busy time by having them work late when necessary. You can control their job description and working schedules as the website suggests.
The disadvantage is that it is not easy to train and manage W2 employees. 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 means that you may get harsh penalties. It is important you know the difference. Familiarize yourself with the IRS requirements to know more about taxes.