Should You Hire a W-2 Employee or 1099 Contractor?


As your business grows, you’re going to need to hire good people to help out. But before you hire anyone, you’ll need to figure out what exactly their responsibilities will be, how long you’ll need to employ them, and what you can afford to pay them.

If you need to build a staff to help you run your business day in, and day out, then you will likely need to hire W-2 employees. But if you need short-term help for specific projects, you can hire a 1099 contractor instead.

The difference between employees and contractors

Contractors and employees are distinctly different. An employee works a fixed schedule and performs specific, recurring duties. They’re usually come to the place of business and are overseen by a manager while they work.

Contractors are often hired on a temporary basis to completely a project. They use their own tools and equipment and work on their own time, from their home or office. Contractors operate as an independent business and invoice for the work they perform.

One the biggest differences between employees and contractors is how income tax is withheld and paid. Businesses withhold taxes for their employees and issue W-2 forms at the end of the year. Contractors are expected to withhold and pay their own taxes and are issued a 1099 form at the end of the year by the different businesses they worked for.

The advantages of an employee

When your business needs extra hands, hiring an employee is often the most logical choice. There are many advantages to classifying a hire as a W-2 employee, including.

  • They learn how your business operates and to perform a wide range of tasks.

  • Their wages can be lower than a contractor since they’ll receive other benefits.

  • You know exactly when they’re available to work and have insight into how they’re performing.

  • They’re committed to your business since you’re most likely their only employer.

  • They have the desire to grow their career with your company.

The advantages of a contractor

Even though most businesses hire employees, there are certain situations when hiring a contractor is the better option. Temporarily hiring a contractor has specific advantages over hiring an employee, including:

  • They have specialized skills and can be counted on to complete complicated projects.

  • You can set a deadline for when the project needs to be completed and their employment will end.

  • You can determine a budget for their work so you know exactly how much their employment costs your business.

  • They can get right to work since they don’t require any training.

  • It can be easier to fire a contractor if they’re not working out.

What does your business need?

Whether you should hire a W-2 employee or 1099 contractor really depends on what your business needs. If you need help with different areas of your primary business operations, hiring an employee probably makes the most sense. But if you don’t know how to handle the other things that pop up, a contractor with the right skills can help.

You can also hire a contractor and offer them the opportunity to join as an employee if everything goes well. There are upsides and downsides to both employees and contractors so be sure to thoroughly consider your business needs so you can make the best choice.

If your business is growing, BookKeeping Express can be the perfect partner. We offer a wide range of financial services, including bookkeeping, expense management, payroll, and more. Discover all the different ways we can help you.