1099 vs. W2: Which Is Better for Employees and Contractors

As a small coworking space business owner or an entrepreneur preparing to hire your first employees, you might be wondering whether it pays to include them into your payroll or to instead contract freelancers. Let us compare the main forms of employment so that you can decide which one works better for you. In a nutshell, there are two forms of worker classification and, consequently, two ways of hiring employees: 1099 and W2.

1099 vs. W2: Difference Between Forms of Employment

The former stands for an independent contractor, while the latter refers to a traditional salaried employee. What’s the distinction between a contractor and an employee?

You can exert control over your employees’ work. They normally come to work and leave the office at a particular time and complete their tasks by a deadline set by you. Typically, a full-time employee works only for you. A front desk manager or a community manager are examples of W2 staff members.

An independent contractor, on the other hand, exercises greater freedom. They can set their own schedules. They are also more flexible with the tasks they choose to accept and usually work for a few clients. Cleaning personnel or tech support are typically independent contractors.

Before hiring an employee, you have to define what employment form is the most beneficial for you as well as for your worker.

W2. Pros and Cons of Hiring Employees

Hiring employees on a W2 means including them in your payroll, paying all taxes, health insurance and contributing to unemployment insurance on their behalf. All in all, the regular costs associated with hiring a salaried employee are quite high.

Another thing you should remember is that terminating a contract with a W2 worker is more difficult than that of an independent contractor. That’s why it’s crucial to document any behavioral issues of salaried employees and to conduct annual performance reviews.

At the same time, salaried employees feel more secure. They tend to show more loyalty and accountability for their work and its quality. As an employer, you can attract a wider pool of talented people if you hire them as salaried employees, because highly skilled professionals usually cherish social stability, paid vacations, corporate perks and incentives that an employer provides.

Pros and Cons of Hiring 1099 Contractors

Hiring independent contractors means saving on costs. Not only do you save on taxes, health insurance, retirement plans, and social contribution, but also you can pay them on an ad-hoc basis for the projects that they have completed.

However, a 1099 partner might not be bound by a service agreement solely with you. They can be working for a few clients at the same time and may not be available to work when you require their urgent assistance. Independent contractors might never become part of your close-knit team because they are usually outsiders who come if and when needed.

1099 and W2 are the two tax forms that workers submit annually.

Differences between 1099 vs. W2: Hiring Staff for Your Coworking Space

Hiring an independent contractor comes out cheaper; however, you should be proactive and consider how things will look longterm. For example, you might be better off hiring a salaried community manager whose personality and approach to work will help you build a flourishing community. At the same time, thanks to visitor management systems, you might need a receptionist on rare occasions for certain events and thus, can hire them as a contractor. The same holds true about technical support and cleaning personnel.

To help you decide whether you should hire a salaried employee or an independent contractor, ask yourself these questions:

1.   How many hours per week do you need a person to be on-site?

If the answer is 30 hours or more, you need to hire an employee.

2.   Does this person need to be at the coworking space all the time?

If the answer is yes, we are also talking about a W2 worker.

3.   What is the budget for this role?

Usually, independent contractors charge more per hour but cost you less in the long run, because you pay for them as they complete specific work for you (which does not happen regularly).

Weigh all the options and see whether you can save longterm by hiring a freelancer, or if it makes sense to invest in a highly talented employee whose diligence and work ethic will generate more profit than costs.

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