As a new business owner, you may wonder: What does contract w2 mean for a job position? Employers often hire W2 and 1099 workers. Even so, employers will onboard a W2 contract worker into the workspace in a different manner.
A temporary contract W2 is a hybrid document, somewhere between an employment contract and an independent contract. It is most often distributed by a temporary workplace. We will break down what the position entails, including what a W2 contract is and its benefits and drawbacks.
What is a W2 Contract?
Some staffing agencies hire workers and place them in an organization. When that happens, it qualifies as a W2 contract position. The staffing agency uses the worker to fill a short-term role. Other times, the worker may handle a specific project for a set amount of time.
Knowing what a W2 contract means is understanding that your business will work with a staffing agency when arranging to fill a position. The steps include:
- Step 1: Your company creates a contract with the staffing agency.
- Step 2: Your company lets a staffing agency know when you need their workers for a short-term or contract project.
- Step 3: The staffing agency is responsible for paying these W2 contract workers.
Do W2 Contractors Work Full Time?
Working with a W2 contractor is like having a full-time employee in your company, but W2 contractors do not work full time for the same company. They work for your company until completing their duties. Afterwards, they will move onto different organizations for new work.
What Does Contract W2 Mean for Payroll?
You will not put W2 contract workers on your payroll. Your business will pay a fee to the staffing agency. The agencies are responsible for:
- Recruitment
- Hiring
- Proposing the ideal candidates for your assignments
If you do not want many people on a payroll, outsourcing for W2 contractors is highly beneficial. If you do want to manage your own payroll, utilizing accounting and payroll software like AMS Payroll can help.
Pros and Cons of W2 Contract Workers
The advantages of hiring a W2 contractor worker include:
- They come with their own expertise
- You can give them an assignment and trust that they will quickly get to work
- Companies can see if contractors fit well with their workers during a set period of time
- Companies will likely spend less money filling these positions
Unlike for your employees, you do not need to offer benefits to W2 contractors.
Alternatively, the short-term nature of W2 contractors means that:
- W2 contractors may not adjust to the company culture
- Companies will need to navigate multiple contracts to hire resources
- The resources for a job function can become time-consuming
- Even if you like a W2 contractor, it may be hard to work with them again
The designed impermanence of W-2 contractors means that they are within their rights to move onto the next job once they finish the one for your business.
Frequently Asked Questions
- Are W-2 contractors entitled to receive any overtime pay? – Yes, but any overtime pay for W-2 contractors is the responsibility of the staffing agency and meant for workers who do not belong to an exempt category.
- Can a client company permanently hire a W-2 contractor? – Yes, staffing agencies will sometimes provide “temp-to-hire” arrangements for their W-2 contractors. Make sure that you find out beforehand if there is a waiting period or conversion fee.
Using AMS for W2 Contractors
You may wonder what does hiring a W2 contractor mean when tax season rolls around. Even though you do not pay the contractor, you will need to keep track of the staffing agency’s fees. AMS’ 1099-etc modular suite of tools helps users e-file year-end W-2 and 1099 forms to the Internal Revenue Service and Social Security Administration. Tax software will help minimize your chances of losing or misplacing data.
For the 2025 tax season, the error rate among e-filed returns was less than 1% compared to a 21% error rate for paper returns.
Download our free 1099-etc Demo software today and see how you can automate your tax filing process from start to finish.