Contractor or Direct Hire Employee?

Direct hire or contractor?

Depending on the nature of your job, you may have options when it comes to finding a way of working that, well, works for you. Today many companies are offering flexible schedules, or the option of coming to the workplace, working remotely, or working in some combination of the two.  In this environment, you may be reconsidering how much independence you prefer overall.

Let’s look at other options: being a full-time worker (receiving a W2 during tax season) or a 1099 contractor, which grants some level of independence. What’s the difference between an employee and an independent contractor? Let’s explore the positives and negatives to help you decide which is right for you.

Pros of being a W2 employee


Benefits: You get the company’s full suite of benefits, which can include healthcare, 401(k) retirement plans, stock options, paid parental leave, life insurance, and pre-tax accounts for healthcare, transportation, or childcare. Some employers offer perks like fertility benefits, tuition reimbursement or a stipend, and discounts at national retailers.

Taxes and protections: As an employee, the company’s payroll department handles everything related to taxes and deductions, which greatly simplifies things at tax time. Your net pay is yours to do with what you want. Employees are also entitled to legal protections, such as the minimum wage requirement or overtime pay if they are non-exempt.

Belonging:  Being an employee can mean feeling like you belong. You’re included in department and company meetings and events, such as team building and other fun activities. To some people, being an actual employee shows the company’s commitment and investment in you and your future.

“As a (full-time employee), there is an opportunity to be treated as a full member of the team,” said Jill Katz, founder of Assemble HR Consulting. “Organizations that ‘do it right’ embrace FTEs in a myriad of ways ranging from career development and team alignment to philanthropic opportunities, compensation, medical/dental benefits, and paid time off.”

Katz explained, “Because the allure of becoming a contractor has increased over the past two years, companies should be working harder to create special, appealing positions that include far more than the ‘work of the work.’”

Cons of being a W2 employee

With commitment comes responsibility. This isn’t as simple as showing up for work every day. If you are an exempt employee, you may be expected to work overtime without additional compensation. You’ll typically need to set goals and have regular reviews to chart your career trajectory.  You’ll also be bound by employment guidelines and any codes of conduct the company has. The company may have rules about what you can and can’t say online or on social media. They can even dictate whether or what type of second job/side hustle is acceptable.

Pros of being a 1099 contractor

Time and money: What is an independent contractor? Essentially, you set your own schedule and rates. If you don’t like a client, you can usually stop working for them when you want. Engagements can be short, long, or overlapping if you have the time and capacity for the work. You don’t have to ask permission to take time off. Many people prefer the freedom and control a 1099 contracting position brings, as they don’t have to do work that they don’t want to and aren’t necessarily bound to a 40-hour work week.

“For me, the pro of being a contractor is I call the shots,” said Karon Warren, a freelance writer in Ellijay, Georgia. “I decide who I want to work with, what projects I’ll accept, what rates I get, when I work, and how much I work.”

Taxes: A big benefit of contracting is that you can write off work-related expenses. If you have a commute, you can take a mileage deduction. Office supplies, conferences, and even a new work cell phone can be deducted. Many contractors work with accountants to ensure they take all the deductions they legally can to lower their tax burden.

“After being a 1099 contractor for over 20 years, there’s no going back to W2 work for me,” said Beth Kapes, president and founder of Moving Words Into Action, LLC. “The wide variety of clients and knowledge, and the flexibility and self-empowerment I’ve gained far outweigh the full-time employment lifestyle.”

Contractor or an employee: Check your status

If you are doing the same work as a full-time employee but are working as a 1099 independent contractor, you may want to ensure you’re being classified correctly — are you truly a contractor? Some companies try to use contractors to avoid adding a full-time employee to the payroll so they don’t have to provide benefits. Check the IRS site if you’re unsure of your status.

Cons of being a 1099 contractor

Benefits: As a contractor, you won’t get employee benefits like healthcare, retirement savings accounts, and employee discounts. You don’t get paid when you don’t work — time off is unpaid. Further, there is no promise of a certain number of hours, days, or years of work. The company can cut back your hours or end your arrangement without notice.

Taxes: As a contractor, you are completely responsible for income and self-employment taxes. Many contractors pay their taxes quarterly to avoid having a large financial burden at tax time. The money you receive has no deductions, so you must be disciplined at understanding how much you should keep from each paycheck and what amounts should go to taxes, insurance, and other expenses.

Belonging: Some contractors feel left out like an outsider. You may not be automatically included in department or company messages, meetings, or events. There can also be technical problems, such as the inability to use licensed software that is only for employees.

Tip: Some workers start as contractors but eventually are converted into full-time employees. Consider whether that is a path you want to take and talk with your manager about how and when that could happen.

Contractor vs. full-time employee

“There’s no one-size-fits-all solution when it comes to whether you should take a W-2 or 1099 role,” said Dr. Kyle Elliott, founder, and career coach, “I’ve personally been on both sides of the table, and each has its advantages and disadvantages. Ultimately, the decision of which one is best is a personal choice. If you like not having to worry about your benefits and perks, W-2 may be the safe choice. However, if you like autonomy and freedom, 1099 may be the better route for you.”


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