As a new US business or a business looking to move stateside, it is critical to know the difference between a 1099 vs. W2 employee status. Each type of employment uniquely affects workers’ rights, and each boasts unique benefits.
To decide between 1099 and W2 and determine which is better for your company, consider the benefits of both categories and how they align with your business’ goals.
Comparing the Benefits of 1099 vs. W2
When comparing the 1099 vs. W2, it is important to consider each type of employment’s benefits and potential drawbacks. It is also essential to understand how each affects your employees’ rights.
What is a 1099 Employee?
A 1099 employee is an independent contractor. As a 1099 employee, they will sign a work agreement with their employer. This contract sets the employee’s pay rate, parameters of the work they are performing, and additional stipulations related to the service they provide. These terms are negotiable and decided upon before they begin working.
In this type of employment, an employee is hired to perform a service, but their employer cannot legally control how they perform the work. 1099s work as sole proprietors, but they may also choose to work as an LLC.
What is a W2 Employee?
A W2 employee is a traditional full-time or part-time employee. Under W2 employment, an employee is expected to work for their employer for a certain number of hours per day and receive an hourly or salaried wage.
Typically, an employer controls the employee’s time at work and workflow. The W2 employee will generally have a designated lunch break and assigned tasks that must be completed according to their employer’s time frame and set standards. As a W2 employee, the employer has a legal right to control how services are performed.
Which is Better for Employees: 1099 or W2?
There are benefits and downsides to both W2 and 1099 employment status. Carefully consider your business’ goals and how 1099 or W2 employment aligns with those goals.
Benefits of 1099
As an independent contractor, 1099 employees are responsible for paying federal taxes, health insurance, and work expenses on their own. They may consider working with a tax planner to ensure everything is correctly accounted for. While this may seem like a downside to contract work, other benefits may offset it. For example, a 1099 employee has the freedom to work with a variety of employers, learn new skill sets in their field, and set their rates. A 1099 also allows the employee to set their own schedule and expand professionally on their own terms.
Benefits of W2
Conversely, the benefits of a W2 are job security and tax coverage. A W2 employer pays 50% of the Social Security and Medicare taxes, and a W2 employee is likely eligible for healthcare, time off, and retirement options. With a W2, an employee works the same set number of hours per week, which provides a daily routine and predictable pay schedule.
Consult Our Team About Your 1099 or W2 Status
If you have concerns or questions about whether 1099 vs. W2 is better for your new US or US-inbound business, contact the offices of Rooney Nimmo today. Our experienced team is available to assist business owners with queries regarding the benefits of hiring employees as 1099 vs. W2.