5 Simple Advantages of Being a W2 Compared to a 1099 Independent Contractor
Five Key Benefits of Choosing W-2 Status Over 1099 Independent Contracting
How did you come to be a 1099 Independent Contractor? Many of us who have at one time been 1099's, including the writer of this blog, were classified as 1099 because the customer decided to compensate us without taking out taxes.
It’s easier for the customer, we as 1099 get more money in our pocket up front, and it removes the complexity associated with being an "employee.”
However, once we receive the mysterious 1099-MISC form from the customer and we take it to our friendly CPA, we then find out we need to pay a larger bill to have our now complex tax returns prepared and, unless we were calculating and properly paying quarterly tax payments, likely need to fork out additional money to cover our taxes. Being 1099 comes with the understanding that you are your own boss running your own business!
It’s not all negative though. You technically do not have an employer and you can come and go as you please. You may also be eligible for some additional deductions to reduce your taxable income.
As an entrepreneur, I've been doing business for over 25 years. I've consulted, set up companies, been an employee, been 1099, managed and worked under SOW's and helped hundreds of people navigate employment and payment for service agreements. 2019 is a different time for business and for our society as a whole. Employee rights, social responsibility, tax revenue, liability, and healthcare reform have transformed the landscape for business and work product providers (W2's, 1099's etc.).
Employers no longer have the freedom when it comes to worker classification the way they once did! The legislators and the judicial system are moving further and further away from non-employee relationships being a viable option for companies and workers.
With the AB5 legislation in CA and NY looking to enact similar legislative changes, the likelihood of a worker being accurately classified as 1099 is getting much slimmer.
There are many significant advantages of being a W-2 Employee:
- You still can have a high level of freedom and autonomy. Telecommuting and flexible work schedules are becoming more and more prevalent in corporate America. You can likely still be free to work when and where you want. Just ask!
- Pre-tax healthcare benefits are almost always better and cheaper than the open market. Not only does your Employer contribute to the cost, but you also pay your premiums pre-tax. The employer also pays 7.65% towards your FICA…something 1099 must pay directly to the IRS.
- The 401K retirement mechanism is better than other mechanisms by far. While there are Self-Employed 401K plans available, employer plans usually have much lower fees since you get the benefit of a larger employer and their economies of scale.
- The protections of Workers Compensation, Unemployment Insurance, and even disability are all included.
- Probably one of the most underestimated benefits of being a W-2 is the community. Being a W-2 employee gives you access to tons of useful company resources. Groups, events, team culture, online resources, and continual training are all things companies spend millions of dollars on for good reason and guess what ... a 1099 Independent Contractor DOES NOT have access to any of things.
What does it look like to go from 1099 to a W2?
- A third party, like TCWGlobal, evaluates the project and the candidate to see if a 1099 relationship is the right & legal way of completing the project.
- If it is decided that the project needs to be completed by a W-2 employee, then you will receive an email with a job offer as a W-2.
- After that, it's easy, you onboard electronically from your phone or computer. You key in personal information, banking information, select your benefits, provide you tax and right to work information, acknowledge a background check and YOU ARE DONE.
- You can on-board from your phone in about 14 minutes (StaffingNation data through TCWGlobal).
If you have any questions, please ask. There are many great resources out there - including the team at TCWGlobal! Below is an informative video talking about the benefits of being a W2 employee compared to 1099.