Should I aim to be a Contractor or W2 employee?
For workers like freelancers or consultants: should I aim to be a W2 employee or a contractor? Which is better for me?
There are pros and cons to each.
Pros of being a W2 employee
You may be eligible to receive benefits like health insurance and a retirement plan
You probably aren’t responsible for finding more work for yourself – it’s assigned by someone else
If you are selling, you have the weight of a company and brand behind you. It’s a lot easier than selling your own work.
Can be more stable
Taxes are easier. You don’t have to complete a Schedule C and your income tax is automatically withheld from your paycheck, so you shouldn’t have to worry about a big tax bill at the end of the year or accidentally way overpaying your taxes all year.
If you get fired, you are eligible for unemployment
Cons of being a W2 employee
You probably report to a boss
You have to do things their way
They might make you go into an office. You might have to commute. You might have to work in a cubicle.
Probably don’t get as much vacation as you would like
You might be expected to respond to office communications in the evenings or on weekends
You have less control over you career progression, professional development, and learning new skills
There may be restrictions on what other work you can take on (competitors of your employer etc.)
Pros of being a contractor
You are self employed and have clients instead of a boss
You get to do things your way
You get to decide how much you get paid for your work. You can probably charge more than would as a W2 employee.
You get to learn a lot of new skills
Cons of being a contractor
You’re kind of on your own
You may have to manage contracts with multiple companies that you work for. You are in charge of customer service and keeping all of your clients happy.
You have to buy your own equipment
You may have to pay estimated taxes
You have to find clients, so in addition to whatever it is you do, you have to do marketing of your own business too
You have to figure out your own health insurance and retirement
Requires a lot of internal motivation
You have to learn a lot of new skills
You are in charge of compliance
If you get fired, you are not eligible for unemployment
For a lot of these items, it depends how you feel about the thing: You have to learn a lot of new skills (ugh) or you GET to learn a lot of new skills (yay!).
Tell me what I should add to these lists!
Note that you have certain rights as a worker, and some job designs require that the person who does them is a W2. So if an employer is offering a job that requires a W2, you will have to negotiate aspects of the position so that it becomes a job that can be done by a 1099 contractor. If an employer hires you as a 1099 for work that should be considered W2 work, they can get in trouble with the IRS and state agencies. In some states, there are also fines/penalties for misclassifying a worker as a W2 instead of a 1099! As a worker, you can’t really get in trouble for your employer misclassifying you.