Key takeaways:

• Understanding the difference between W2 employees and independent contractors is critical for making the right hiring decisions.
• W2 employees are eligible for benefits, such as health insurance and retirement plans, that independent contractors typically do not receive.
• Hiring W2 employees can come with legal and regulatory considerations that employers need to be aware of.

What is a W-2 Employee?

A W-2 employee is a worker who is considered an employee of the company they work for. This type of worker is classified as an "employee" under the Internal Revenue Service (IRS) guidelines, and is typically eligible for benefits such as health insurance, paid time off, and a retirement plan. W2 employees receive a W-2 form from their employer each year, which reports the total amount of taxable income earned and the taxes withheld from their paychecks.

What’s the difference between W-2 employees and independent contractors?

One of the key differences between W2 employees and independent contractors is the level of control that the employer has over the worker. W2 employees are considered employees, and as such, the employer has a significant amount of control over their work and how they perform their duties. Independent contractors, on the other hand, are considered self-employed and typically have more control over their work and how they perform their duties.

Another key difference is the amount of benefits offered. W2 employees are typically eligible for benefits such as health insurance, paid time off, and a retirement plan. Independent contractors, on the other hand, are not typically eligible for these types of benefits and must provide for themselves.

Legal and regulatory considerations

When you’re hiring W2 employees, there are several legal and regulatory considerations that you should keep in mind. For example, you'll need to comply with employment laws such as the Fair Labor Standards Act (FLSA), which sets minimum wage and overtime standards for employees. You'll also need to comply with laws such as the Affordable Care Act (ACA), which requires employers to offer health insurance to employees who work at least 30 hours per week.

In addition to these legal requirements, you'll also need to consider the cost of hiring W2 employees. W2 employees typically receive higher salaries and benefits, which can increase your overall costs. You'll also need to consider the costs of compliance, such as paying for employee benefits and tax withhold.

Bottom line? If you want the faster, easier way to hire, consider making hires as contractors. If you want someone full-time and want more control over how they work, try hiring employees. Of course, no matter which you hire, make sure you stay compliant and avoid misclassification.

Hiring contractors? Thera can save you a ton of time

You don’t need to issue W-2 forms to your contractors. But, if you are hiring contractors, you’re probably spending too much time on their payroll, contracts, and tax documents. Which is why we built Thera, which saves you 90% the time you spend on contractor paperwork each month.

With Thera, you can compliantly hire your contractors in 150+ countries, onboard them in minutes, and pay them all at once (in a click). It’s global contractor payroll, finally simplified.

Sound interesting? Click here to book a demo.