The benefits of 1099 vs w2 is a question that remains slightly confusing, with valid arguments on both sides. It has also become even more relevant in the past year, especially given remote work’s rise.
The question remains: Is it more beneficial to input workers in your payroll system or to seek independent contractors? Ultimately, this comes down to determining the shortcomings and the benefits of 1099 vs w2 forms.
The Difference Between an Employee and Independent Contractor
It is important to know the distinction between employees and independent contractors. This not only informs you, the employer, about what you can expect from them, but also the way that you pay them. Simply put, common-law employees are those who perform services in a specific fashion. They are employees rather than contractors if you control what and how the service is done. Even if the individual has autonomy during the process, if you hold the final say, they are an employee.
Alternatively, an independent contractor is someone who is self-employed and offers their services. An individual is designated an independent contractor if you, the payer, can only control the finished result. However, in that case, the payer does not control the process in which the service is rendered.
What are the Benefits of 1099 vs W2?
Like any business decision, it is important to weigh your options before jumping in headfirst. That much can be said for when you decide to hire independent contractors. The money-saving element is a benefit of hiring these contractors. Hiring a 1099 worker means you can save on taxes and health insurance. Also, you are not putting additional money in retirement plans or social contributions. Instead, you will pay your independent contractors as arranged based on their completed assignments.
A 1099 worker’s skill set is another important benefit. Rather than hiring an employee who may serve multiple functions in the company, an independent contractor can offer expertise in a specific setting. Additionally, there is a certain amount of freedom afforded to both your business and the independent contractor. As an employer, you are not entitled to provide overtime pay, worker’s compensation, or vacation time.
There are disadvantages to counter the benefits of 1099 vs w2. The laissez-faire approach to hiring independent contractors may save money. However, it can prove difficult to assure the highest quality. Without the promise of benefits like overtime or vacation, there may be less incentive for these workers to produce the best final product. Similarly, 1099 contractors may have other obligations. If your company requires urgent assistance, they may be contractually bound to another project.
A Tax and Wage Software Can Help
Regardless of whomever you hire, the most important thing is choosing the right tax software. Advanced Micro Solutions offers W2 and 1099 Software. The software supports as many as 99,999 employees/recipients per payer. Therefore, when weighing the benefits of 1099 vs w2 workers, make sure you use a system that makes any form filing easy and efficient.