Texas is a hotbed of startup action. As an entrepreneur, you could launch a business in fields as diverse as tech, health care or energy. You know your game plan inside and out; part of this plan is deciding who you need on your team.
Should you hire a regular employee (also known as a W-2) or an independent contractor (a 1099)? It’s not just about whether you can afford to pay someone; it’s about building your A-Team.
Here are four factors to consider before making this crucial decision.
Nature of work
Startups often hire independent contractors for specific projects or specialized skills. On the other hand, if your business is growing and you need ongoing support, W-2 employees are typically the better choice. For instance, hiring experienced individuals for leadership roles could be wise if you want to expand your business.
Control and flexibility
Another factor to consider is control. If you want to dictate not only the result of the work but also the process of how the work is done (including setting specific hours), a W-2 employee is likely your best bet. On the other hand, independent contractors generally have more control over their schedules and the methods they use to complete their work.
Costs of hiring
Hiring a W-2 employee often comes with additional costs beyond wages, such as benefits, payroll taxes, unemployment insurance and workers’ compensation. With independent contractors, you typically only pay for the work done since they handle their taxes and benefits.
Risk appetite
Whether you’re driven by growth or just starting out, deciding between a W-2 or a 1099 will depend on your risk tolerance. Liability issues can differ between employees and independent contractors. For example, businesses may be held liable for certain employees’ actions but not their independent contractors.
The decision to hire a W-2 employee or a 1099 contractor for your startup depends on your specific needs and circumstances. Both options come with their own sets of risks and benefits, and it’s essential to consider which choice will be most beneficial in the long term. Ultimately, the best decision is the one that supports the growth and success of your business.
