Freelancers or independent contractors differ primarily from regular employees in terms of their employment and tax status.
W-2 employees
A W-2 employee is regularly on payroll of an organization, and is hired to work for an unspecified period of time to perform an on-going activity. They also withhold taxes from their checks, sending them to the state and federal government as needed. Organizations also make Social Security and Medicare deductions, and pay all employment taxes for W-2 employees. These workers also have the legal protections and benefits like overtime, health insurance etc.
Examples of common W-2 workers include: · Hourly labor and customer service type workers · Salary workers performing daily tasks necessary to the organization · Organizational executives and management
1099 workers
On the other hand, a 1099 worker would be an operating their own business and generally work for more than one customer or client. They also cover their own business expenses and report and pay taxes on their income. They have no legal protections or employment-related benefits from those who hire them.
A few examples of typical 1099 workers are:
- Freelance writers, photographers and graphic designers
- Non-ongoing or limited scope consultants
- Task-based gig workers who engage in the completion of tasks or projects, often via online platforms or apps
- Contract workers such as those hired through temp agencies or other vendors
Difference between 1099 vs. W-2 employees
1099
- Taxes – No taxes are withheld; the worker is responsible for all the taxes
- Benefits – Typically, not eligible for benefits
- Legal Protection – Limited legal protection
- Work type – Provide one-time or limited-scale support
W-2 Employees
- Taxes – Employer withholds and remits state and federal taxes and also pays their share of employment, Social Security and Medicare taxes
- Benefits – Eligible for benefits offered by the company, such as health insurance and retirement programs
- Legal Protection – Covered under state and federal employment regulations that apply to your organization
- Work type – Hired for an indefinite time to support ongoing work
