Contract Employee 1099 vs. W2 Employee: The Risks for Talent

January 22, 2024 | Career Blog

In today’s job market, the distinction between a 1099 contractor and a W-2 employee has become increasingly vital for workers. As individuals explore different working arrangements – such as gig staffing and part-time roles – understanding the risks and ramifications associated with these classifications is crucial.

Allegiance Staffing knows that the choice might not always be clear when looking for work. The intricacies of today’s employment options can be confusing! Fortunately, we can guide you through complicated issues around contract employee 1099 vs. W-2 employment. Let’s dive in.

The Differences: Contract Employee 1099 vs W-2 Employee

Understanding the potential implications of being classified as a contract worker vs. a W-2 employee is critical when finding a new job. It’s also important to know the downsides of gig work and to carefully consider employment associations that may not offer the full benefits of traditional jobs.

Here are some important issues to consider around contract employment as a 1099 worker compared to a W-2 employee.

Tax Implications

Among the most recognizable differences in the two types of employment are the tax implications. You will want to determine which classification works best for your situation.

• 1099 Contractors: Individuals classified as 1099 contractors are considered self-employed. This status means you are responsible for handling your own taxes, including filing IRS forms and paying self-employment taxes. While this situation may provide more flexibility, it requires meticulous record-keeping and a proactive approach to filing tax forms – such as the 1099 form – and making tax payments.

• W-2 Employees: W-2 employees, on the other hand, have taxes withheld by their employers. This includes federal and state income taxes, as well as Social Security and Medicare taxes. The advantage for W-2 employees is the predictability of your tax obligations, with the burden of compliance resting largely on your employer.

Job Security and Stability

Depending on your working style, a freelance contractor position could be a better fit for some individual workers. But, taking on the role of employee offers more stability. Think of it like renting property: a W-2 worker is locked into a formal lease, while a 1099 employee is more month-to-month. It all depends on your situation and which arrangement works for you.

• 1099 Contractors: Contract work may offer flexibility, but it often lacks the stability of a W-2 position. Contracts can be temporary, and work may not be consistent, leading to periods of unemployment.

• W-2 Employees: W-2 employees benefit from greater job security and stability. Employment contracts or work agreements typically outline a set period of employment, providing you with a sense of continuity and financial security. You may also be entitled to health insurance and other benefits.

What Are the Risks of Each Employment Type?

As with all endeavors, there are risks associated with both 1099 and W-2 employment. Some things may benefit you as the worker, but do not work out well for the company – and vice versa.

Weighing the risks and rewards of contract employee 1099 vs. W-2 employees can help achieve balance and lead to a more fruitful partnership.

1099 Contractor Risks

1099 contractors bear the burden of irregular income, lack of job security, and limited access to benefits. You are also responsible for managing business expenses and adhering to tax regulations, which can be complex.

W-2 Employees Risks

While W-2 employees enjoy stability and benefits, you may experience less flexibility in work hours and responsibilities. Additionally, you are subject to the decisions and policies of your employer.

Time to Reconsider Your Current Job Pursuit?

When deciding which work classification is best, you may also want to look at specific companies you are interested in working for. Take the time to look at their typical hiring approach:

• Does the company hire full-time employees?
• Does the company mostly work with contract workers?
• Is there a mix of both full-time W-2 employees and independent contractors?

Remember, the allure of flexibility from contract work should be weighed against the potential downsides of financial insecurity, a lack of benefits, and the absence of legal protections.

Allegiance Makes it Easier to Find the Right Working Situation

At Allegiance Staffing, we know that navigating the minutiae of contract work and W-2 employment can be difficult for everyone involved. For workers, you may want to advance in your career, gain financial stability, and achieve other personal goals.

Our team takes a holistic approach to staffing so that everyone can benefit. We can help you determine whether to pursue a contract or W-2 role and match you with the right company.

When looking for your next position, check out our Job Postings to find a potential job that fits your needs. The best part is that once you are placed at a job, you get paid directly through us. Even if you switch companies down the line, you’ll have a more stable, direct line of income.

Plus, Allegiance offers a comprehensive benefits package as part of your compensation. That includes contributory medical, vision, short/long-term disability, and other perks! Depending on where you are placed, you may also be entitled to paid time off.

– Read more about our talent support in the Employee FAQs.
– Get in touch with our knowledgeable support team to discuss your goals. Our professional staff is ready to talk more about contract employee 1099 vs. W-2 employee issues and discuss other issues that matter to you.