Business owners understand the impact choosing the right hires will have on their business. Dependable, skilled labor is crucial to its success.
Finding the best person is only one part of the equation. You also need to determine whether you want to bring them on as a 1099 subcontractor or a W-2 employee.
There are benefits and drawbacks to each designation, so the choice can be difficult to make. Let’s unpack the biggest considerations in deciding between hiring a subcontractor or an employee classification.
There’s often a huge difference in how much a subcontractor costs compared to a W-2 employee. While the former may charge a higher per-hour fee, it may be less expensive in the long run. Why?
W-2 employees typically mean employers pay:
When you’re trying to decide on which designation to choose, your budget should be one of the first, most impactful elements to consider.
Some jobs may require a highly specialized skill set for certain aspects of the project.
Subcontractors may be able to come in and perform these highly-skilled tasks better than full-time employees.
On the other hand, scheduling conflicts are more likely to occur with 1099 workers than they are W-2 staff. These issues can hold up projects and cause you to miss deadlines. Weigh how frequently you’ll need access to specific expertise when choosing to use a subcontractor or hire a full-time employee.
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Opting for a W-2 employee designation gives the employer more control over the work hours and environment. It allows you to train them like you want, set rules and expectations, and oversee their work.
In addition, the employee focuses all their attention on their role at your company, instead of potentially juggling other customers.
With subcontractors, you can agree to a scope of work and sign a contract, but you still don’t have as much control over their performance as you do a W-2 employee.
Some contractors want a good deal of flexibility in their work, while others are happy with a more set workforce. If you prefer the flexibility of building your project team on a case-by-case basis, a subcontractor may be the better option for you. This choice tends to work well if your projects and workloads vary widely.
In contrast, if you want the “sure thing” of having a full staff for every project, or if your workload is stable from month to month, a W-2 employee may suit your objectives better.
Hiring staff means making their livelihood one of your top priorities. There’s no doubt a W-2 employee is the bigger commitment. If your company is solid and your workload steady, a part-time or full-time employee may be worth the commitment of providing consistent pay and benefits.
However, if you’d rather not take the leap, a subcontractor can help you out and fill in as needed, without the pressure of taking care of a W-2 staff member.
Your personality and broad outlook on how you like to run your business also play into the W-2 vs Subcontractor decision. If you would rather work with the same person on every job, know they’ll be available, and train them to your standards, a W-2 may be the better option. However, this setup requires more effort in managing them day-to-day.
From another perspective, if you want an already-trained person to pitch in on projects with minimal supervision, the subcontractor route may suit you better.
Before deciding which path to take, consider your business level over the next one, two, and three years. Do you have consistent projects and new opportunities on the horizon? If so, hiring a W-2 employee who can be available consistently may be your best choice.
But, if your work is highly seasonal, or a feast-or-famine type operation, you may save money and serve your clients better by finding some reliable, experienced subcontractors to work with on an as-needed basis.
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Deciding whether to hire a W-2 employee or to work with a 1099 subcontractor takes thoughtful consideration. Weigh all these factors, not just one or two, when making your choice. This approach will ensure you build a team that contributes to your client satisfaction and company growth.
The experienced contractor accountants at Chaliff + Associates can assist you with classifying your employees, along with your bookkeeping, tax preparation, and all other accounting needs. Reach out for a consultation with Chaliff + Associates today!