Unsure whether to classify a worker as employee or independent contractor? Let’s find out the answer to, “Is 1099 better than W-2?”
Sometimes, this question can be answered by your company’s needs alone. Consider some factors for whether independent contractors are better hires than employees. Does your BLANK require short-term workers for a project, or long-term workers who can grow with the company? Can your company take on the financial costs of hiring employees, or does the lower cost of independent contractors seem more feasible?
If you need more help determining whether a 1099 independent contractor status makes more sense than a W-2 employee status for a specific worker, the lists below provide benefits and disadvantages for each classification.
1099 Benefits
- Less tax obligations and expenses
- Hiring flexibility
- Expert insight for specific field
1099 Disadvantages
- Frequent employee turnover
- Less oversight on employee conditions
W-2 Benefits
- Commitment to the company
- Ability for employee to grow with company
- Less employee turnover
- Stronger employee community
- More oversight on employee conditions (hours, benefits, etc)
W-2 Disadvantages
- Must file taxes for W-2 employees
- Increased time commitment
When is it best to hire an employee?
If your company needs a worker who is committed and ready to grow, it makes sense to hire an employee. When you have the financial means to take on an employee, it might be better to invest in a long-term worker instead of several short-term workers. In these cases, is 1099 better than W-2? Probably not.
When is it best to hire an independent contractor?
If your company has a project that needs expert perspective and management, it might be best to hire an independent contractor. Another possibility is that your company needs work done that is outside of the company’s scope, like tech support or something crucial to the work but not able to be completed by your company. Contracting that work out to an independent consultant would be the right choice. So, in these cases, is 1099 better than W-2? Yes!
Determining Whether a Worker is an Employee or Independent Contractor
The difference between an employee and an independent contractor is not always clear. The IRS provides some information on worker status determination, but even those definitions are somewhat nebulous. According to the IRS, classifying a worker as an employee or independent contractor is dependent on a few factors: behavioral, financial and type of relationship.
Once you make the determination, you need to distribute the correct forms. An employee will require a W-2 form. You will need to provide independent contractors a 1099 form, valid taxpayer IDs (Social Security Number or EIN,) and a W-9 form.
If you are still unsure, you can fill out Form SS-8 with the IRS and wait on the IRS determination of worker status.
AMS Helps You File 1099 and W-2 Forms
Ultimately, is 1099 better than W-2? In some ways, yes, hiring independent contractors is better than hiring employees. It truly depends on your company’s needs, and its financial capacity. The AMS W-2 and 1099 Forms Filer can assist you whether you hire all employees, all independent contractors, or a combination. Our tax software can support whatever classifications you make.