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What are the disadvantages for companies to make people work as W-2? Is there more paperwork on their part?

snowwrestler 12y ago
As I understand it, there can be a big difference in liability. Generally speaking, when you contract with someone, the liabilities are generally limited to what is defined within the contract. When you employ someone, you open yourself to the full spectrum of labor regulations and liabilities.
nanijoe 12y ago
When you have W2 employees, there are additional taxes you have to pay, which you don't have to worry about if they are 1099. At a certain size, you are also mandated to provide Health Care benefits etc
justboxing 12y ago
As @snowwrestler has mentioned, the disadvantages arise from the Company required to take on liability for damages, work not completed etc, as well as the provision of benefits (sick leave, retirement plans etc). In the context of being an Independent Contractor however, my experience has been that very few companies are willing to directly hire a person as a 1099 Software Contractor. A majority of them have you come on as a "W-2 Contractor". What this means is that the Recruiting Company "forces" you to sign up with them as a "W-2 Contractor", and they in essence withhold taxes, and provide mostly Sh*ty benefits, and give you a lower rate than if you were an independent 1099 Contractor. On the flip side, the Company at which you will be performing your work has none of the risks associated with 1099 Contractors, and can fire you at any time without any risk of a lawsuit from you, since their legal agreement is with the recruiting company that hired you as a "W-2 Contractor", and not with you directly. Hope this makes sense. I hate this situation and I wish some Jobs / Career startup company would address this pain point, i.e. software engineer forced to go through "W-2 Companies" and hence getting a lesser hourly rate and thrust with benefits that the contractor doesn't need (as his spouse may have medical benefits from a fulltime job etc). i.e. it would be cool if a startup career website could connect 1099 Independent Contractors with the Companies that need them, and get them the higher rates that are currently being "eaten" by the middle-men / brokers that masquerade as Recruiting Companies and make you get on a W-2 at a much much lower rate.
- xacaxulu 12y ago
  If at all possible, never every work with these vampiric middlemen. They represent the worst in IT (and probably other fields as well).
- usernamepc 12y ago
  Like many others have mentioned, the client companies don't want to be involved in hiring 1099s directly because of the liability (lookup google/odesk). What our startup http://www.oncontracting.com http://www.oncontracting.com is doing instead is making the staffing space more transparent and empowering contractors with information- so you can lookup the various preferred staffing agencies that service certain clients and then shop among them to go with whoever charges the lowest markup.
Spooky23 12y ago
The employees have payroll tax, health insurance, various compliance requirements, and some rights. You also have to tell the government when you get rid of a lot of them Contractors have less baggage, as long are the IRS doesn't decide to audit you and apply their rules for who is a contractor vs employee.
pyrophane 12y ago
Basically, employers aren't supposed to hire people as independent contractors (1099) and treat them like employees by doing things like requiring them to work specific hours, supplying their equipment, or giving them a semi-permanent position. The IRS views that as misclassifying employees to avoid paying their share of the social security and medicare taxes, which get foisted onto the contractor in the form of the self-employment tax.

As I understand it, there can be a big difference in liability. Generally speaking, when you contract with someone, the liabilities are generally limited to what is defined within the contract. When you employ someone, you open yourself to the full spectrum of labor regulations and liabilities.

nanijoe 12y ago

When you have W2 employees, there are additional taxes you have to pay, which you don't have to worry about if they are 1099. At a certain size, you are also mandated to provide Health Care benefits etc

justboxing 12y ago

As @snowwrestler has mentioned, the disadvantages arise from the Company required to take on liability for damages, work not completed etc, as well as the provision of benefits (sick leave, retirement plans etc). In the context of being an Independent Contractor however, my experience has been that very few companies are willing to directly hire a person as a 1099 Software Contractor. A majority of them have you come on as a "W-2 Contractor". What this means is that the Recruiting Company "forces" you to sign up with them as a "W-2 Contractor", and they in essence withhold taxes, and provide mostly Sh*ty benefits, and give you a lower rate than if you were an independent 1099 Contractor. On the flip side, the Company at which you will be performing your work has none of the risks associated with 1099 Contractors, and can fire you at any time without any risk of a lawsuit from you, since their legal agreement is with the recruiting company that hired you as a "W-2 Contractor", and not with you directly. Hope this makes sense. I hate this situation and I wish some Jobs / Career startup company would address this pain point, i.e. software engineer forced to go through "W-2 Companies" and hence getting a lesser hourly rate and thrust with benefits that the contractor doesn't need (as his spouse may have medical benefits from a fulltime job etc). i.e. it would be cool if a startup career website could connect 1099 Independent Contractors with the Companies that need them, and get them the higher rates that are currently being "eaten" by the middle-men / brokers that masquerade as Recruiting Companies and make you get on a W-2 at a much much lower rate.

xacaxulu 12y ago
If at all possible, never every work with these vampiric middlemen. They represent the worst in IT (and probably other fields as well).
usernamepc 12y ago
Like many others have mentioned, the client companies don't want to be involved in hiring 1099s directly because of the liability (lookup google/odesk). What our startup http://www.oncontracting.com http://www.oncontracting.com is doing instead is making the staffing space more transparent and empowering contractors with information- so you can lookup the various preferred staffing agencies that service certain clients and then shop among them to go with whoever charges the lowest markup.

Spooky23 12y ago

The employees have payroll tax, health insurance, various compliance requirements, and some rights. You also have to tell the government when you get rid of a lot of them Contractors have less baggage, as long are the IRS doesn't decide to audit you and apply their rules for who is a contractor vs employee.

pyrophane 12y ago

Basically, employers aren't supposed to hire people as independent contractors (1099) and treat them like employees by doing things like requiring them to work specific hours, supplying their equipment, or giving them a semi-permanent position. The IRS views that as misclassifying employees to avoid paying their share of the social security and medicare taxes, which get foisted onto the contractor in the form of the self-employment tax.