Nothing is more confusing than terms 1099 Employee and W2 Employee. Every person who gets a job offer either has to sign a 1099 form or W2 form. Now the question is what precisely these numbers and letters mean. 

If you are wondering what a 1099 Employee is and how it is different from a W2 employee, then it’s time to start getting the answers to all those questions. I will explain both terms for you, highlight the Difference between W2 and 1099 Employee.

What is a 1099 Employee?

Companies hire 1099 employees, and they ask them to sign a 1099 form. The name of this employee is based on a form known as 1099-MISC. This employee is not a regular salaried employee. This one is either a contractor or a freelancer. 

How  Does a 1099 Employee Get Paid?

The 1099 Employees are independent, self-made business contractors, and freelancers. They sign a contract with an employer and sign a 1099 form through which they report income on their tax return. As far as payment is concerned, some employees get paid by hours while others based on a project. They get paid from an employee depending on their contractual terms.

Benefits of Hiring 1099 Employee for Business

Small and big companies hire 1099 employees, as it helps them cut the cost of an employee. They don’t have to withhold employment taxes for this kind of employee. As they have less responsibility related to this employee, therefore, they don’t have many legal obligations.

Know: How to Terminate an Employee

EXAMPLE 1: 

The best example of this kind of employee is one when a company needs some freelance writing for their web pages. They hire a freelancer and then ask them to sign a 1099  form. Once a freelancer submits the work, the employer reviews it and makes payment. Once the project is done, this contract is over, and nothing more is required.

EXAMPLE 2: 

Your company has a book-keeping job, but it’s recurring nature, but any person can do it by spending a few hours every day. If you hire a full-time or short-time employee. You have to pay him his salary. Instead, you opt for a contractor who can charge a per hour basis and handles your work. In that scenario, that person won’t be a regular employee but a 1099 employee. 

What is a W2 Employee?

Everyone might not be well-aware of a W2 employee, but we all know about salaried employees. They are the people who receive a salary and typically the permanent workers in a company. W2 Employee is the term used for a generic salaried employee. 

Now the question is, what does W2 mean?

Well, a 1099 employee signs a 1099 form while making a deal with an employer. In the same manner, a W2 employee signs W-2 form while he is entering into terms and conditions with his employer. The name of this employee is also based on the W2 form name.

Understand W-2 Form Here

EXAMPLE 1

You need a finance manager for your company; you hire an expert who can do this job and ask him to sign a W2 form.

EXAMPLE 2

A real-estate company requires an architect who can become a part of their design and development team. So, an architect will be a permanent employee and sign a W2 form. It’s not a one-time job. Instead, it will continue for an undefined time period.

If you get a bit confused between W2 Employee and 1099 employee, then no worries because I will clear the whole concept by highlighting the Difference

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What is the Difference between W2 Employee and 1099 Employee?

It’s time to dig into some points of Difference between both kinds of employees.

• Form: A W2 employee will sign a W2 form while a 1099 Employee will sign a 1099 form. Know what is 1099 form exactly is.
• Time Period/Length of Employment: The time period of a 1099 employee depends on the job and project. If the project is completed, then his employment period is over. Typically, it’s a short-term nature contract. However, sometimes an employer hires 1099 employees repeatedly. Like when they need their services, they hire them again.Contrary to this, a W2 employee becomes part of the company for an extended period. His employee period is not defined in the contract.
• Resources: An employer will furnish all the tools and resources that a W2 employee needs to complete his job. On the other hand, an employer doesn’t need to provide resources for doing a job to a 1099 Employee.
• Control: An employer got more control over a W2 employee over a 1099 employee - they are independent. An employer will define where a W2 employee will work, how he will work, and with whom they will work. But a 1099 employee doesn’t work under the umbrella of his employer. He can hire other freelancers or contractors to complete a job.
• Financial and Legal Responsibility: As an employer doesn’t get much control over a 1099 employee, he receives a minimal level of oversight. Therefore, his level of financial and legal responsibility is minimum with this kind of employee.An employer doesn’t need to pay payroll taxes or withheld employment taxes for a 1099 employee. However, he has to do both when he hires a W2 Employee. Here is how to Write up an Employee
• Salary and Benefits: A W2 Employee gets payment in the form of wage and employee benefits. However, a 1099 employee only gets pay or the amount of money agreed upon during the contract. He is not eligible to get benefits from a salaried employee, such as health benefits, pension, and other stuff. However, if an employer wants to offer a 1099 employee such sorts of benefits, then he can easily do this, it won’t be illegal.

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Wrap Up

I hope your concept of both W2 and 1099 employees has become pretty clear. In simple words, contractors and freelancers are known as 1099 employees, while salaried people are referred to as W2 employees. Got some questions? Feel free to ask.