Your business has grown and you officially need more help getting your jobs done. You have two options: hire independent contractors or hire employees. Both have pros and cons but which one is right for you can be a hard decision. Let’s talk about each of these to help decide what is best in your situation.
Difference Between Independent contractors and Employees
The main difference between an independent contractor and an employee is that an employee actually works only for you. You hire them, pay their salary and offer any benefits. An employee will get a W2 form for tax purposes. An independent contractor, on the other hand, usually works with multiple clients and is not on your payroll. They require 1099 forms for tax purposes.
It is important to note that no one who is doing work for you should receive a W2 AND 1099 form.
Pros and Cons of 1099 Contractors
Hiring independent contractors can be a cost effective way to get the job done. You can save on taxes, insurance, retirement and any other benefits you might offer to a full time employee. There is less paperwork and time that goes into “managing” them. Because contractors are usually specialized in a discipline, they will be an expert in the job you are hiring them for.
On the other hand, some downsides of having 1099 relationships vs. employees could be time availability. Because they work with others, you will be fitting into their schedule and that can be a challenge. If something is urgently needed, they may not be available to help. You have less control over when things get done and may have less control over costs as well.
Pros and Cons of W2 Employees
A huge benefit of hiring a W2 employee is that they are then dedicated to working with your company. They are on your timeline, you set the processes to be followed and you can outline clear roles and responsibilities for your employees. Also, when you hire your costs are more consistent, less variances and you have control over the costs associated with the employee. Overall, there is a bit more stability and control over your production when it comes to hiring employees. There is also the “feel good” aspect of being able to give people a job that supports their families.
The downsides, like mentioned above, there can be more costs associated with hiring (ie. wages, benefits, worker’s compensation and taxes). You will need to have processes in place to manage everything needed for hiring, like employee forms, running payroll and managing time off. It can feel overwhelming to manage all of these things if you are not prepared for it.
The Decision
As you can see, there are pros and cons to both hiring 1099 contractors and W2 employees. It really comes down to your company’s situation, season of growth and how you ultimately want to operate. Construction companies can be successful with both setups so don’t let either one scare you.
Payroll and Employee Management Services
If you do decide to hire employees, there are companies that can help with the behind the scenes work needed. At 24hr Bookkeeper, we offer payroll and employee management services. Payroll includes processing of payroll, payment and reporting for tax purposes, W2 processing, workers compensation payments, and handling garnishments like child support. We can also help manage pay raises, anniversaries, vacation schedule tracking, and benefit management. We can help give you peace of mind knowing that payroll is done correctly and your employees have a resource for payroll and benefit related matters.
