Hiring employees at your small business is an exciting step towards growth and long-term financial success. It’s one of many signs of business health and is an excellent sign to investors that you’ve projected a sunny forecast from here on out. Aside from economic advantages, your work family is growing, creating a buzz in the community. However, before hiring, you need to decide what “type” of employee you will hire – a W2 or a 1099 employee. Both have advantages, but there is likely one type that works best for your current business model, and we’ve got the breakdown.
In the simplest terms, the significant difference between these two types of new hires boils down to 1) company employees and 2) independent contractors, or the self-employed. Of course, both are paid by your company, but taxes and withholdings are different for these two types (hence, the additional tax forms required at the hiring point.)
W2 Employees AKA Company Employees – When the time is right, hiring W2 employees will be a big commitment, but with big rewards. One advantage is the massive vote of confidence you show employees and community members by growing your company and investing in the people that work there. In addition, most businesses develop loyal employees and “long-timers” that appreciate the benefits of working at your company full time, including insurance and other company-assisted assets. Of course, your business must withhold taxes and pay payroll taxes for its employees, so consider this when hiring. You also have to consider that there are more legal risks with W2 workers as your company is responsible for working conditions and other legal expenses such as potential personal injuries or damage.
1099 Employees AKA Independent Contractors or the Self-Employed – Hiring 1099 employees has several advantages. Still, perhaps the nicest one of all would be the flexibility of scope that fluctuates with your flow of needs. Think of it as a pay-as-you-go wireless phone instead of committing to an annual contract with a wireless carrier. A 1099 employee can submit a proposal, and you can decide at your own pace how much you’re willing to spend at a time on this consultant. You don’t have to pay all of the “extras” that you have to pay W2 or company employees because you don’t legally have to offer insurance or any other benefits that come with being a full-time employee. 1099 employees file their taxes without your company’s assistance, so that is a time and money saver.
Whatever you choose, talk to your tax advisors, insurance agents, and the IRS to ensure you make the right choice. SOGO Insurance can help you with all types, from business insurance to personal insurance options for your employees. Our knowledgeable agents are ready to go over the pros and cons of each of your questions to help you decide what works best. Call us or visit us online at SOGO Insurance for a quote.
In case you missed it: Check out “The Reality of Opening Up a Bar” to make sure your bar opening goes as smoothly as possible!
