"But a W-2 an employee gets payments into social security, unemployment insurance, various protections, so it’s the decent thing to do, even if it costs a bit m

"But a W-2 an employee gets payments into social security, unemployment insurance, various protections, so it’s the decent thing to do, even if it costs a bit more." You can adjust for those costs and pay the contractor more, ie you say to the contractor "look we understand you have to pay for your health insurance, self employment tax, etc so we are going to cover those expenses with more pay." Of course it doesn't feel like it - the contractor still has to pay those things on their taxes which never feels good. So there is the psychology behind it - a W2 employee being paid less might feel better about their tax situation because they don't as much in taxes. Well, they do pay, but that money never reaches their bank account.