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1099 vs W-2: What Fits Your Life?

When you’re looking for a job - especially when you need work quickly - worker classification (whether you’re a 1099 contractor or a W-2 employee) isn’t always top of mind. It’s usually more about the work, the company, when you can start, and when you get paid.

But in the long run, classification can have a big impact on your life, your career, and your earnings. Read on to get a better understanding of the ins and outs of 1099 vs W-2 work and for a guide to choosing what’s right for you.

Why does classification even matter?

There are a number of things that are impacted by your classification:

  • Employer contributions to your taxes
  • When and how much you pay in taxes
  • How you’re compensated
  • Your ability to collect unemployment insurance
  • What kind of flexibility your job has
  • Your workers’ compensation coverage
  • Availability and employer contributions to health insurance and other benefits

Surprised? Many people don’t realize that all of these factors are dependent on whether you’re a 1099 contractor or a W-2 employee. But when we get down to the details, there are a lot of important factors that change depending on what type of work you choose.

What’s the difference?

At its core, the difference is simple: when you’re a W-2 employee, your employer takes on the responsibility of providing core needs; when you’re a 1099 contractor, you’re in charge of providing all those things for yourself. Of course, it isn’t always a bad thing to rely on yourself and to be your own employer. Some people love it. But it’s critical to know what you’re getting into and have access to the resources you need before you start.

W-2 Work: Pros and Cons

There are a lot of pros to being a W-2 employee. When you’re W-2, it’s your employer’s job to provide the protections and benefits you need and want. As a W-2 employee, your employer typically provides:

  • Employer tax contributions, like FICA and Medicare taxes. As a contractor, you would pay these out-of-pocket.
  • Unemployment insurance. This means you have access to state unemployment benefits if you are laid off.
  • Workers’ compensation insurance. This is particularly important in warehouse and general labor jobs, where there are more potential on-the-job injuries.
  • Accrued sick time or paid time off.
  • Guaranteed minimum wage and overtime eligibility. Contractors are often paid based on the project, regardless of hours spent, or an hourly rate that doesn’t always account for expenses.
  • Benefits like healthcare and dental insurance, provided that you’re working full-time.

All of these provisions help make it easier to predict how much money you’re actually making, account for unexpected events like illness or injury, and sleep soundly knowing you have a safety net. 

However, this can also come with a downside. W-2 jobs will often come with a set schedule or hours that employers expect you to work, and there are often stricter expectations for what tools or processes you use to do your work. W-2 work is great for people who want long-term stability and benefits, but that doesn’t necessarily appeal to everyone.

1099 Work: Pros and Cons

Over the past decade, more and more people have tried out work as 1099 contractors. And a big part of the appeal is the ability to “be your own boss.” As a contractor, that includes:

  • Increased flexibility. As a contractor, you have the ability to set your own hours and be as flexible as you need. Since you’re paid by the project or an hourly rate, you typically get to decide when you do the work - unless you have a contract with a company where you agree to be available at certain hours.
  • Varied experiences. When a contract ends, there’s nothing tying you to a specific company or type of work. This can be great for people who like to have a lot of different experiences or don’t want to stay in one place. However, it’s worth mentioning that there are options like Bluecrew that allow you to switch companies or jobs while staying a W-2 employee.
  • More control over your own schedule. 1099 contractors typically have the ability to choose what days they want to work and schedule time off when they want it. This can add a ton of flexibility but has to be weighed appropriately - as a contractor, you typically aren’t paid for any vacation days.

The reality is that 1099 status can work out well for a lot of people - those who have a lot of outside schedule constraints, have specialized skills that are in high demand, have the security to budget for taxes and maintain their own financial safety net, and have access to benefits through a different source. For those who don’t, there are a lot of financial pitfalls to being a 1099 contractor that can greatly outweigh the pros.

What’s Most Important

This completely depends on who you are and what your goals are. Everybody has different priorities, and what works well for one person may not work as well for another. We suggest thinking through what you need out of a job and what you’re willing to compromise. If you’re reliant on your employer for benefits or you want the stability of predictable, transparent wages, W-2 is the way to go. If being able to set your own hours is the most important factor for you, 1099 can be a good option. It all comes down to what works for you.

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