Hiring a 1099 Contractor vs. a New Employee: What’s Best for Your Business?

As a small business owner, solopreneur, or startup founder, growth means making key decisions—including whether to bring on a 1099 contractor or a W-2 employee. Both options have their pros and cons, but choosing the right one can impact everything from your bottom line to your legal compliance. Let’s break it down so you can make the best choice for your business.

Cost: What’s the Financial Impact?

1099 Contractors: You don’t have to worry about payroll taxes, benefits, or paid time off. They handle their own taxes and insurance, making them a more cost-effective solution for short-term or specialized work.
Employees: You’ll need to budget for payroll taxes, health benefits (if applicable), and paid leave. However, employees provide consistency and long-term investment in your company’s growth.

Compliance: Don’t Get Caught in a Classification Mistake

Misclassifying a worker as a contractor instead of an employee can lead to IRS penalties, back taxes, and legal trouble.

1099 contractors operate independently, control their schedule, and use their own tools—making them ideal for project-based work.
W-2 employees are under your direct supervision, follow company policies, and typically have long-term job expectations.

Pros & Cons: Weighing Your Options

Hiring a 1099 Contractor
- Pros
  - Flexible—hire as needed for projects
  - No payroll taxes, benefits, or ongoing commitments
- Cons
  - Less control over work hours and methods
  - Risk of misclassification issues
Hiring a W-2 Employee
- Pros
  - Long-term investment in your business
  - Greater control over tasks and availability
- Cons
  - Higher costs due to taxes and benefits
  - More legal responsibilities as an employer

What’s Right for Your Business?

If you need short-term, specialized help (think graphic design, social media management, or one-time projects), a 1099 contractor might be your best bet. But if you need dedicated, long-term support (such as customer service, operations, or administrative roles), hiring a W-2 employee makes more sense.

Still unsure?

Better Bookkeepers can help you decide which option is best for your business—and ensure you’re filing the correct forms to stay compliant!

Book a consultation today and let’s get your hiring strategy on track!