The Pros and Cons of Hiring a 1099 Employee, Explained

There’s really no such thing as a ‘1099 employee.’ This is a common designation given to contractors who work full-time for a company but ‘1099’ and ’employee’ have conflicting meanings.  

Employers might make this mistake in phrasing because hiring a 1099 employee can replace the need to hire someone as a W-2 employee. But it’s important to understand the difference between a contractor and an employee if you want to avoid penalties with the Department of Labor.

Check out these pros and cons of hiring independent contractors. 

The Cons of Hiring a 1099 Employee

Both the IRS and the Department of Labor have very strict rules about who qualifies as an employee versus a contractor. In days of old, employers could designate employees, contractors, and interns in whatever category made the most sense for their budgets.

But this quickly led to conflicts of interest and the Fair Labor Standards Act (FLSA). In an effort to prevent labor fraud, the federal government created rules for how to determine whether your relationship with a contractor is really an employer/employee relationship.

The downside to hiring a contractor is having to constantly monitor your interactions to ensure you’re not crossing the line. Independent contractors can’t have:

  • dress code 
  • detailed directions on completing tasks
  • job duties that are permanently a part of operations

If you’re caught misclassifying contractors, you’ll be subject to certain requirements like overtime and minimum wage.   

Employee status means you owe taxes and are subject to operating under your state’s employment laws. When you hire an independent contractor, you are giving up the right to dictate how things are done.

If you need control over your project, weigh the pros and cons of 1099 vs W2 first.

Pros of Hiring an Independent Contractor

An independent contractor can be an amazing resource for your business. Independent contractors cover their own overhead, provide their own supplies/equipment, and usually have expertise in their fields.

You have fewer management frustrations with independent contractors because they don’t require constant supervision. Instead, you can reveal your project goals or deliverables and simply wait for the task to be completed.

With a W2 employee, you’re obligated to train, supervise and sometimes provide benefits in order to remain competitive. Independent contractors don’t have expectations of receiving any perks from employers. 

It’s also much faster to hire an independent contractor than hiring a W-2 employee. Employees have mandatory onboarding through human resources.

There’s usually no application or orientation required for new contractors. 

1099 vs W2 Employee

There are many benefits of both W2 employees and hiring a 1099 employee. Just be sure you understand that anyone being issued 1099 is never truly an employee.

They might work on a team in your office, but they need enough autonomy to justify their job classification. You don’t want to be hit with tax penalties from your state and federal government for having contractors replacing the role of what should be a W2 employee.

For more information and tips, visit our blog for updates. 


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