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W2 Employee vs. 1099 Contractor - Who to Hire (Part 1)

Twin Peak Industries Newsletter
August 5, 2010 Volume 6

Every business is cyclical, and the inflatables industry is no exception. There are times when you may be so busy that you have no choice but to turn business away, and then other times when you are just waiting (and hoping) for the phone to ring. Unfortunately despite your sales revenue from month to month many fixed costs may remain the same. However, the cost of workers does not have to be seen as a fixed cost.

As an employer you have the option to hire workers, particularly delivery and set-up staff, as 1099 Independent Contractors, as opposed to W-2 employees. A W-2 employee is paid by your company's payroll with the necessary taxes withheld, including applicable employer taxes. An individual working on 1099 status is actually considered to be self-employed and hired on a consulting basis for you.

There are many benefits to hiring your set-up and delivery staff as 1099 Contractors. While an independent contractor may be paid a higher hourly rate, in the long run your business will probably save money. By eliminating "employee status" you will save on social security taxes (independent contractors are required to pay Social Security as both the employee and employer themselves), state unemployment and workers' compensation insurance.

Another tremendous advantage for hiring 1099 Contractors to staff your inflatables business is that you have much greater leeway in staffing restraints based on your current business conditions. Independent contractors can be hired to perform setup and/or delivery functions for a particular event only. This eliminates the need to have idle staff during down-times. This also saves you any headaches and expenses of potential lawsuits that often accompany firings and layoffs. While advantageous, there are also some downfalls to employing independent contractors for your inflatables business. You will have less control over your workers. Independent contractors tend to be just that, used to working independently. Using independent contractors as needed for events also means that your turnover will be high, with workers continuously coming and going.

Another disadvantage to hiring an independent contractor is liability. If the contractor is injured while working for you they are not covered under workers' compensation, as a W-2 employee would be. This gives them the right to sue you to recover damages based on an injury that may occur while working for you.

To protect yourself, keep in mind that you should have a written contract with all 1099 Contractors outlining the expectations and work that they will perform. This contract should also include fees or costs that your business will pay and how the contractor will be paid.

For additional details on the difference between a W-2 Employee and a 1099 Independent Contractor visit IRS Article.

Take a look at your inflatables business and determine whether the best route for you is W-2 Employees or 1099 Independent Contractors.

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