What Is the Difference between a W2 Employee and a 1099 Contractor?

When in search of the best person to hire, the entire recruiting process can take some time, depending on the position you want to fill and what is required. Of course, you need to have and know all details before making any move so that you actually pick the right person for the job, and knowing the difference between these two types of workers is the first step to take.

Why learn the difference?

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It might seem unnecessary to learn the difference between these two types of workers and simply hire one of them, but not knowing it can be much more troublesome than we think.

There are two crucial aspects, and the first one is financial, as we will need to pay penalties to IRS if we make a mistake when classifying our workers. It can become even worse than simply paying the penalties, as we can face legal issues and spend a lot of time in court. Of course, it all depends on who’s responsible for a mistake, but when it comes to dealing with the IRS, in most situations than not, the one filing reports is the one responsible for any misleading or false info. The reason for that is simple, as every single thing is differently classified, and the same is with the type of worker and whether it’s the payroll or not.

As you can see, taxation can be a huge problem here, as this whole process of filing a report differs regarding the type of worker and their contract. If anything unplanned happens and if there is any mistake, it can also affect them, and it is important for them too, as they also need to file all those reports, and the only way for them to avoid being in any kind of legal trouble is by having the right kind of paystubs. It is also the only way to file a complete report, as all the necessary info is listed right there on the paystub. Finally, understanding the difference will help you know the amount of control over employers, their schedule, charges, and everything else, and know what to expect and what your rights are when it comes to various demands. Overall, even though many confuse these two, in reality, the decision whether to go with a W2 Employee or a 1099 Contractor can be a huge one.

Why these names?

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At first glance, these two terms sound pretty confusing, and many people often think that terminology used must perfectly describe the seriousness, but that’s not true as both of these names and terms are actually there for a practical reason. Namely, even though these names sound complicated and difficult to learn, there is a good reason why they are used for these two types of employers, and the names are because of forms employees use to report their earnings and everything else for the year. Knowing when each of these two forms should be used can help both parties understand all the crucial facts and aspects before signing any agreement.

As you can see, knowing whether it is a W2 Employee or a 1099 Contractor reduces the time spend when filing any paperwork, and it speeds up the whole process for both the company and employees. It’s all about efficiency, especially in this modern age, and this is yet another way to speed up the filing process because, as we have already mentioned, knowing the difference helps them understand their rights and obligations.

The main difference

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These two differ a lot, but what you should definitely know is that W-2 ones can be hired for a full-time or half-time job, and you are the one who determines their shifts, salary, and other important aspects of their position at the firm. Overall, this means that you can negotiate and find the best person for the job and agree on all terms without having to check the minimum or maximum amount of earnings required for the position. On the other hand, if you decide to go with a second option, you should know that they are much more independent, as they are self-employed, which means that they are in charge of their working hours, propose the price for a certain job and decide whether the conditions suit their needs or not. In essence, it’s about whether you want to be the one dictating the price of the project or you want to go with an easier solution where all that is settled way before the actual work starts.

How to decide who to hire

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There are some advantages and disadvantages for both, but there are some situations when choosing one is much better than hiring another. For example, ongoing jobs are much more suitable for the first category of workers because of the amount of control you have over them and different taxation procedures. Of course, this does not mean that it is impossible to hire a 1099 contractor, but you cannot expect the same conditions, and it is more likely that the costs will be a little higher. On the other hand, they are perfect for one-time jobs as hiring them can be much faster than finding the other type of worker and save you from filing complicated forms when it comes to taxation. Keep in mind that one can declare as both, so it is necessary to make everything clear and make an agreement that fits both of you before you start working together.

The importance of paystubs

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Once again, all the necessary info required for both parties is listed in the paystub and can be easily checked, meaning that even if they are declared as both, the entire filing for taxes process should not be that difficult. Of course, it also depends on the quality of the paystub and how much detailed info is listed there, which is also why creating personalized ones is so popular. As an independent contractor or small business employee, you can get legitimate paystubs that show employment details, salary, deductions, and more in just a few steps.