{"id":601,"date":"2020-12-21T08:25:12","date_gmt":"2020-12-21T08:25:12","guid":{"rendered":"https:\/\/blog.tax1099.com\/?p=601"},"modified":"2025-12-30T12:16:18","modified_gmt":"2025-12-30T12:16:18","slug":"w-2-employee-or-1099","status":"publish","type":"post","link":"https:\/\/www.tax1099.com\/blog\/w-2-employee-or-1099\/","title":{"rendered":"W-2 Employee or 1099: Which Is Better for Your Business?"},"content":{"rendered":"\r\n\r\n\r\n\r\n\r\n<p><strong><em>Not sure about hiring a full-time employee (W-2) or an independent contractor (1099-NEC)? This blog will help you make an informed decision<\/em><\/strong>.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>As your business grows, so does the volume of your work. The need for having an extra set of hands to help you with your growing workload pushes you to employ more resources and facilitate smoother operations. After all, having additional resources is a great way of handling work.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>You can evenly distribute the work to a number of resources, create certain positions that can micro-manage the tasks for you, and supervise the overall workflow. Eventually, this process helps you reach your goals (or not).<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>If you managed to reach your business goals, you must be doing something right (but there are ways to make it even better), and if things didn\u2019t work out, this blog might help you understand where you may have gone wrong and how to get things right this time around (in terms of hiring the right kind of resources for optimal productivity and tax compliance).<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>While hiring and getting the extra help is always great, it\u2019s important to weigh in all the options to hire the right type of resource. We are not talking about talent acquisition here. We are talking about <em>resource acquisition <\/em>and how it affects the way you report taxes.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p><strong>Useful Links\u00a0<\/strong><\/p>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\"><li>See the definition of an employee from the IRS <a href=\"https:\/\/www.irs.gov\/businesses\/small-businesses-self-employed\/employee-common-law-employee\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a>.<\/li><li>See the definition of an independent contractor from the IRS <a href=\"https:\/\/www.irs.gov\/businesses\/small-businesses-self-employed\/independent-contractor-defined#:~:text=The%20general%20rule%20is%20that,subject%20to%20Self%2DEmployment%20Tax.\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a>.<\/li><\/ul>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>What kind of resources would best work with your enterprise?&nbsp; Does your company need someone to work for a limited period? Or do you need someone who can work with your company in the long term? Does your company have the financial resources to afford a long-term employee?&nbsp;<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>You will be able to address all such questions by understanding the very subject of this blog \u2013 hiring a contractor versus an employee.&nbsp;<\/p>\r\n\r\n\r\n\r\n<p>Let\u2019s find out.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<h2 class=\"wp-block-heading\">Hiring a Contractor \u2013 1099-NEC<\/h2>\r\n\r\n\r\n\r\n<p>More prominently known as \u201c1099 employee\u201d, an independent contractor is a self-employed individual who offers the services that you require. You hire them for a pre-defined term or as long as you need their services. Businesses are required to report any payments made to independent contractors for their services on <a href=\"https:\/\/blog.tax1099.com\/comprehensive-guide-to-understand-form-1099-nec\/\" target=\"_blank\" rel=\"noreferrer noopener\">Form 1099-NEC<\/a>.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>For example, if you have hired a creative designer for 2 months to design your brand logo and other visual content, it means that you have hired an independent contractor. Whatever money that you might have paid to them for doing that specific work is considered as \u201c<a href=\"https:\/\/blog.tax1099.com\/comprehensive-guide-on-form-1099-nec\/\" target=\"_blank\" rel=\"noreferrer noopener\">nonemployee compensation<\/a>\u201d because you have compensated a \u2018nonemployee worker\u2019.\u00a0<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>Businesses do not have to provide any special benefits to independent contractors, such as medical insurance, bonuses, unemployment relief, retirement benefits, and other employee benefits. This helps you cut down on costs (and even taxes).<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<h2 class=\"wp-block-heading\">Hiring a Professional\/Individual as an Employee \u2013 W-2\u00a0<\/h2>\r\n\r\n\r\n\r\n<p>Businesses hire qualified professionals to utilize their services full time. Unlike an independent contractor, who works as a freelancer, an employee works for your company and your company alone, for as long as you can afford them (or until they find a better offer elsewhere).<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>If you are hiring a qualified professional, you are required to provide certain employee benefits, such as health insurance, bonuses, unemployment relief, retirement benefits, and more.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>You must report any employee compensations you have made to an employee, such as salaries, wages, overtime compensations, workers\u2019 compensations, and more, on <a href=\"https:\/\/blog.tax1099.com\/what-is-form-w-2\/\" target=\"_blank\" rel=\"noreferrer noopener\">Form W-2<\/a>.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>For example, if you have hired a woman named Kiara as a Creative Director for your company, then you are required to report whatever compensations that you are making to Kiara as \u201cemployee compensations\u201d in Form W-2.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>It is extremely crucial to understand the difference between these two resource types.&nbsp;<\/p>\r\n\r\n\r\n\r\n<p>So, we have created a simple chart, which will help you understand what differentiates an independent contractor from an employee.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<figure class=\"wp-block-table is-style-stripes\"><table><tbody><tr><td><strong>Employee&nbsp;<\/strong><\/td><td><strong>Independent Contractor<\/strong><\/td><\/tr><tr><td>Businesses pay remuneration, wages, salaries, bonuses, and other kinds of regularized (fixed and timely) compensations to employees<\/td><td>Businesses pay fees, service charges, and other compensations to independent contractors depending on the agreed terms&nbsp;<\/td><\/tr><tr><td>Needs to be reported on <a href=\"https:\/\/www.irs.gov\/forms-pubs\/about-form-w-2\" target=\"_blank\" rel=\"noreferrer noopener\">Form W-2<\/a><\/td><td>Needs to be reported on<a href=\"https:\/\/www.irs.gov\/forms-pubs\/about-form-1099-nec\" target=\"_blank\" rel=\"noreferrer noopener\"> Form 1099-NEC<\/a><\/td><\/tr><tr><td>Businesses are required to provide employee benefits to employees<\/td><td>Businesses are not required to provide any employee benefits to independent contractors<\/td><\/tr><tr><td>An employee works for the employer only<\/td><td>An independent contractor works for several clients&nbsp;<\/td><\/tr><tr><td>Tools, material, and equipment to work are to be provided by the employer to the employee<\/td><td>Independent contractors use their own resources, tools, and materials to work<\/td><\/tr><tr><td>The employer decides the time and location of work for the employee<\/td><td>A contractor gets to decide their time and location of work<\/td><\/tr><tr><td>An employee works under the control of the employer<\/td><td>A contractor is independent and is not required to obey the obligations of the hirer<\/td><\/tr><tr><td>An employer cannot delegate their work to outsiders or others<\/td><td>An independent contractor is free to delegate their work to others<\/td><\/tr><tr><td>The employer provides training to an employee<\/td><td>An independent contractor does not require training&nbsp;<\/td><\/tr><tr><td>An employer and employee are bound by an employer-employee relationship<\/td><td>An independent contractor and hirer are not bound by any relationship<\/td><\/tr><\/tbody><\/table><figcaption>Employee Vs Independent Contractor<\/figcaption><\/figure>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<h3 class=\"wp-block-heading\">Weigh In On Your Options &#8211; When Hiring an Independent Contractor\u00a0<\/h3>\r\n\r\n\r\n\r\n<p>While it might seem tempting to hire an independent contractor for all the cost and tax benefits, there are some challenges.&nbsp;<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\"><li>It would be very hard to chase an independent contractor if you have time-bound projects.&nbsp;<\/li><li>The deadlines for a project are your deadlines, not your contractor\u2019s deadlines.&nbsp;<\/li><li>Independent contractors are not dedicated to just your project. They have multiple projects and clients to work with.&nbsp;<\/li><li>Independent contractors are free to work from anywhere, which might be challenging if your operational business location is different or far away from theirs.&nbsp;<\/li><li>Independent contractors are free to delegate their work to others, which means that you do not get to see or meet the individuals that are taking up your projects.&nbsp;<\/li><li>If your projects are information-sensitive, it\u2019s best to steer clear of independent contractors. Alternatively, you can make your contractors sign a Non-Disclosure Agreement (NDA) to ensure privacy.<\/li><\/ul>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<h3 class=\"wp-block-heading\">When Hiring a Professional\/Individual as an Employee\u00a0<\/h3>\r\n\r\n\r\n\r\n<p>The most important thing to remember when hiring someone as your employee is that you cannot, no matter what, <a href=\"https:\/\/www.irs.gov\/newsroom\/understanding-employee-vs-contractor-designation#:~:text=Classifying%20an%20employee%20as%20an,employers%20liable%20for%20employment%20taxes.&amp;text=The%20IRS%20can%20help%20employers,Taxes%20and%20Income%20Tax%20Withholding.\" target=\"_blank\" rel=\"noreferrer noopener\">misclassify your employees as independent contractors<\/a> to cut down on costs and taxes. Several businesses in the past have <a href=\"https:\/\/www.hbsdealer.com\/news\/employees-misclassified-independent-contractors-awarded-13-million\" target=\"_blank\" rel=\"noreferrer noopener\">paid the price<\/a> for misclassifying their employees as independent contractors.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>The IRS heavily penalizes businesses that intentionally misclassify their employees as independent contractors. Learn more about penalties and punishments <a href=\"https:\/\/blog.shrm.org\/blog\/do-you-know-the-penalties-for-improperly-classifying-employees-as-independe\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a>.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>Even though hiring someone as your employee may seem like the right option at the beginning, there are certain constraints, such as inadequate funds to compensate employees in the long run, complex tax procedures, internal corporate issues, and more, which push businesses to take these wrongful, extreme, and deliberate steps.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>Do not be in a rush to hire more people to be taken more seriously. You are all about business whether others take you seriously or not.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>Having your own dedicated resources, however, has its benefits.&nbsp;<\/p>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\"><li>Your employees abide by your company\u2019s rules and regulations.\u00a0<\/li><li>Your employees are dedicated to your company alone.\u00a0<\/li><li>You can monitor your employee activity and productivity.\u00a0<\/li><li>You get to decide if you want to keep or let go of the inefficient resources.\u00a0<\/li><li>You do not have to chase your employees to meet certain deadlines.\u00a0<\/li><li>Your employed resources are focused on specific projects and goals, which helps boost organizational productivity.<\/li><\/ul>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>Remember that no business empires were built in a day. If your business is not in a position (yet) to hire a full-time employee, then you probably should not hire one. Don\u2019t stretch yourself thin. Instead, try to find budget-friendly freelancers (there are thousands of them out there!) and work around some terms and conditions, which will benefit both parties.<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>The important thing to remember, whether you\u2019re hiring a contractor or an employee is to hire someone, <em>anyone <\/em>who adds value to what you do and carries a healthy attitude towards work.&nbsp;<\/p>\r\n\r\n\r\n\r\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\r\n\r\n\r\n\r\n<p>Have something important to add? Scroll down to the comments sections and start typing.&nbsp;<\/p>\r\n\r\n\r\n\r\n<p>Liked what you read? Share it with your connections and friends!<\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>Not sure about hiring a full-time employee (W-2) or an independent contractor (1099-NEC)? This blog will help you make an informed decision. As your business grows, so does the volume of your work. The need for having an extra set of hands to help you with your growing workload pushes you to employ more resources [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[10,27,103],"tags":[207,11,208,104],"class_list":["post-601","post","type-post","status-publish","format-standard","hentry","category-1099-forms","category-form-1099-misc","category-w-2-forms","tag-1099-employee","tag-1099-forms","tag-w-2-employee","tag-w-2-forms"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.4 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>W-2 Employee or 1099: Which Is Better for Your Business? | Tax1099 Blog<\/title>\n<meta name=\"description\" content=\"Not sure about hiring a full-time employee (W-2) or an independent contractor (1099-NEC)? This blog will help you make an informed decision.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.tax1099.com\/blog\/w-2-employee-or-1099\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"W-2 Employee or 1099: Which Is Better for Your Business? | Tax1099 Blog\" \/>\n<meta property=\"og:description\" content=\"Not sure about hiring a full-time employee (W-2) or an independent contractor (1099-NEC)? 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