To W-2 or Not, That Is the Question

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W-2

A Common Question

A question in the offices of many start-ups is should we convert 1099 contractors to W-2 employees? The simple answer is, do you need to train and supervise them? Convert them. Also, have they arrived project and skill ready and require little to no supervision? Then, they can remain 1099 contractors.

W-2 conversions can be more expensive than contract arrangements. Additional state and federal requirements also apply to W-2 arrangements. For example, you must provide Unemployment Insurance to W-2 employees. Contractors provide their own equipment and typically work independently. Following are a couple of examples to help you understand what works for what types of hiring situations.

Sample Hires to Ponder

Susan is a web design contractor who takes in projects, works on her own processes and requires little supervision. Particularly, she wants a variety of clients and is happy not to be a part of company events like parties and annual bonuses. Susan is a great contractor. Conversely, John wants an employer with benefits, training opportunities and guidance from a senior developer team. He likes to work in groups and is looking for a full-time position. John is a great W-2 arrangement candidate.

What is a 1099 and a W-2?

1099s and W-2s are tax forms. A 1099-NEC is used to report payments made to independent contractors (who cover their own employment taxes). A W-2 form, on the other hand, is used for employees (whose employer withholds payroll taxes from their earnings).

Here’s an easy checklist to use when considering the needs of your business:

1099

  • Needs little supervision.
  • Bring their own equipment.
  • Are highly skilled in their area of expertise.
  • Set their own hours.
  • Pay their own taxes.
  • Require that employers supply 1099 each year.

W-2s

 

  • Want steady employment and employment benefits like insurance, 401(k)s, and unemployment insurance.
  • Require supervision and training.
  • Are eligible for a required work schedule.
  • Specify equipment to be supplied to them.
  • Have taxes withdrawn from their paychecks, including social security, Medicare, and unemployment taxes.

Still have questions? That’s what we do. Please reach out to Osprey Accounting Services by filling in this form.

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