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Working as a Contractor: 1099 or W2?

Updated on May 2, 2011

What are the pluses and minuses when working as a contract employee? Millions do this every year.

On the plus side, you can choose your work and when, you can dictate what is your hourly rate, you can elect to work as a 1099 (independent contract) or W2 (on payroll). You can also decide where you want to work. While it may seem to be the ideal manner, the downside is that you are very expendable as a worker. A contract for, say, several months, might end far sooner with absolutely no warning or reason. In this case, the recruiter who found you the job, simply tells you the client cancelled the contract. Sometimes, it has nothing to do with your job performance but their budget that was set for the project. Other times, it could be any reason, justified or not. Some contacts can go longer than originally planned, but the client will only keep you if they liked you and your work. The shock effect of thinking everything is fine and then getting a call from the recruiter that, for whatever reason, the client cancelled the contract, and now you are unemployed is difficult to digest. So, a contractor will develop thick skin and move on.

The plus about working a contract on a 1099 means that nothing is taken out of your check for taxes etc. That is up to you to pay every quarter. It also means you can pay as little as you want during the year, but when tax time arrives, be prepared to pay a hefty sum! Working on a W2 means the agency will deduct taxes from you check, as if you were an employee. The plus about this is that if you ever need unemployment during times when you have no contract, there will be a record of it available to unemployment to see. With a 1099, this is not the case, and it is up to you to prove to them about the income etc. UI is calculated on the income that they see from the Feds, which is much more timely every quarter.

Working Corp to Corp simply means you have a business license because you are a business entity. It may allow you to obtain or request higher rates because of it. It also means many companies will delay paying you.

For many contractors, the sequence is generally sending out the resume to recruiters or a company. Some recruiters will call you after posting the resume online. The job interview occurs either in person or by phone. Rates are discussed and agreed to. If a job is offered, the time periods and accounting is usually done online through a portal. Direct deposit or a paper check is decided.

Contracts can last any length, but most are 3-6 months in length, some are over a year. Only a few exist where you work from home, employers have a trust issue with this, so most work is onsite. If you are not a US citizen, they will only present additional problems and delays.

At work, the contractor is treated like a regular employee most of the time. Time recording keeping is different and the supervising manager must sign off on your weekly time. Since all employment is "at will", meaning, the job has no real permanency because you could lose it for any reason at anytime, being a contractor is the same. The difference is that a perm employee would receive some sort of compensation package, the contractor gets nothing. A contractor is nothing more than temporary help.  

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    • perrya profile imageAUTHOR

      perrya 

      7 years ago

      Thanks!

    • TheSenior profile image

      TheSenior 

      7 years ago

      There is only one factor left out; and that is if you elect to receive a W2 then you are considered an employee, however if you chose to work on a contractual basis, then you are not an employee And therefore the boss really can't tell you what to do for it is assumed that you know what to do and the state can come in an nullify the 'contractor status' and make the boss pay you as an employee.

      I have seen this happen many times and it happened to me.

    • perrya profile imageAUTHOR

      perrya 

      7 years ago

      Thanks, I do contract work, overall, I prefer W2.

    • dearabbysmom profile image

      dearabbysmom 

      7 years ago from Indiana

      I did contract grant writing for a couple of years and learned the hard way to put money back for taxes. This is good information for people trying to decide whether to go the contract route.

    • perrya profile imageAUTHOR

      perrya 

      7 years ago

      Of course. If you pay none every quarter, when you file, you will owe BIG TIME.

    • profile image

      Donnie Smith 

      7 years ago

      Interesting article. It is important to realize that you must still pay taxes, even when working for yourself. Thanks for posting.

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