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.