- In simple terms, 1099 and c2c are similar in the responsibilities the contractor is responsible for within the scope of the relationship between them and LEVERAGEncy (pay 100% of taxes, assumed to provide insurances or buy them from LEVERAGEncy, etc.). The only difference is how LEVERAGEncy reports income to federal, state, etc entities. With a 1099 the income is reported against the contractors social security number (SSN) and with c2c (corporation to corporation) the income is reported against the EIN (federal employer identification number) that is associated to the corporation he works for. C2C is a bit more paperwork to maintain, but there are tax advantages in operating under one of its various forms (LLC, Corp, etc). You would need to talk w/ an accountant familiar with your situation to figure out if its worth it.
W2, or more accurately limited term employee (LTE), is defined by Leveragency covering the mandatory W2 items only (professional insurances, state filings, tax withholdings employer/employee) and the contractor handles the rest (medical, dental, sick leave, vacation 401k etc.). So the contractor can outsource, basically, his tax witholding and professional insurances (Errors & Omissions, General Commercial, Business Auto Non-Owned, and Workers Compensation) and just get a paystub each period and a w2 at the end of the year for his tax filings. Note, going LTE results in the hourly wage to a contractor in a w2 structure for the same job being lower to cover the costs to provide those items. The exact difference varies as the employer taxes are % based on rate but tends to vary from $5-10/hr depending on what you are getting paid gross. A detailed breakdown for your situation can be made on request (ask your agent).
- Candidates seeking w2 often ask what we mean by limited w2. Here is our standard definition:Limited W2 in our model is defined by LEVERAGEncy covering the mandatory W2 items only (professional insurances, state/fed filings, employer/employee for taxes) and you handle the rest (medical, leave, etc.). Also assumes (by default, one can buy an early pay option) that employee is paid immediately AFTER we are paid by end client via check. So if a client pays us typically 45 days after we invoice you would see a similar lag till your first payment.
We can do 'full w2' which means the above but WITH medical if need be. We do that by running the candidate through a sister company that carries a full benefit plan and such and then they sub the resource back to us. For this to make sense we typically only do that for contracts that are full time and 6+ months in duration.
- Default answer is we don't do W2 if they need benefits like health or 401k. Instead we refer them to a LEVERAGEncy partner (i.e. MBO Partners) that does offer benefits a la carte as part of their W2 model. The LEVERAGEncy partner would then source them BACK to LEVERAGEncy as a corp-to-corp resource @ our corp-to-corp rate (the default rate we typically post on our positions). So the partner gets the full posted rate and then the candidate gets a subset of that (delta occurring to pay for the partners w2 employer taxes, benefits the candidate gets/selects, etc.).
The above said, we can do limited W2 for those that don't need health, 401k etc. Here is our definition of that:* - Limited W2 in our model is defined by LEVERAGEncy covering the mandatory W2 items only (professional insurances, state/fed filings, employer/employee for taxes) and you handle the rest (medical, leave, etc.).
Beyond the default definition of limited W2 by LEVERAGEncy, we can handle expenses for a contractor (as a W2 or 1099). This is talked about here --> Expense Accrual
Mentioned 'no leave' above ... that means no paid off time (vacations, holidays, sick, etc.) is included in a limited w2 structure.
No FMLA as LEVERAGEncy is less than 50 employees as of 6/15/11.
No COBRA as by default we don't provide the benefits that COBRA typically covers (so nothing for COBRA to extend for you).
- If you want to work as a 1099, there are some implications you should be aware of. Most are based on the State and Federal laws around employment and self-employment. That said, here are some notables:
* Witholding Tax. You pay both sides of taxes (employer and employee).
* Social Security Tax. You are expected to pay that 100%.
* Medicare Tax. You are expected to pay that 100%.
* Unemployment Tax. Waived. If you are 1099 you DO NOT qualify for unemployment benefits (you wouldn't list us as an employer). So factor that in.
In addition, 1099's are expected to provide the following insurances. If they don't have them we can add them to our policy for the period of the contract for a $/hr fee (so that we can met end-client expectations).
* Workers Compensation.. You are expected to pay that 100%.
* Professional Insurances.. You are expected to pay that 100%. This means E&O, Business Auto., General Commercial, etc. Levels and specifics may vary by job.
If you still want to be 1099 given the above, LEVERAGEncy will review the state requirements for the state you will be working in as a 1099. For example in WI you have to hit seven out of 10 items off this list (A.2 section):
If you can't hit 7 items on the A.2 list safely, LEVERAGEncy may have to convert you to w2 and reduce your rate accordingly. This may occur prior to or during a given job. Keep in mind our w2 rate is the same as 1099 rates minus the taxes we pay and w2 filing cost. So it really isn't that bad of a deal (we prefer w2 over 1099 as it has less risk or employee reclassification from 1099 to w2).
- To be a 1099 you have to prove its a valid classification for you. If you can't decisively show you qualify most employers will force you to be limited w2 as they are liable for back taxes if the state ever audits their usage of you (and the associated 1099 status). Used to not be a big concern for employers, but given the downturn in the economy states are auditing aggressively in an effort to meet the wave of unemployment claims (1099's don't pay in unemployment tax).
In addition to the above, in the state of WI, the criteria for qualifying as a 1099 changed in 2011. Used to be you needed to prove 7 of these 10:
- The individual filed a business or self-employment tax return for the previous year.
The contractor had or had applied for the federal employer identification number that is used for federal tax purposes.
The individual maintained a separate business with an office, equipment, materials and other facilities.
The individual operated under contracts to perform specific services or work for specific amounts of money and under these contracts controlled the means and methods of performing the services or work.
The individual incurred the main expenses related to the services or work that he or she performed under contract.
The individual was responsible for the satisfactory completion of work or services that he or she contracted to perform and was liable for failure to complete the work or services.
He or she received compensation for work or services performed under a contract on a commission or per job or competitive bid basis and not on any other basis.
The individual had an opportunity to realize a profit or suffer a loss under contracts to perform work or services.
The individual had continuing or recurring business liabilities or obligations.
The success or failure of the individual's business depended on the relationship between business receipts and expenditures.
Now it requires you to do two things. One, that you control how you do the work. These are the questions used to define that:
- Whether the individual was required to comply with instructions concerning how to perform the work;
Whether the individual was required personally to perform the services;
Whether the services of the individual were required to be performed at times or in a particular order or sequence established by the employing unit;
Whether the individual was required to make oral or written reports to the employing unit on a regular basis.
Whether the individual receives training from the employing unit.
Second you have a revised set of 9 criteria (replaces the 10 used prior to 2011):
- The individual maintains his or her own office or performs most of the services in a facility or location chosen by the individual, and uses his or her own equipment or materials in performing the services.
The individual operates under multiple contracts with one or more employing units to perform specific services.
The individual incurs the main expenses related to the services that he or she performs under contract.
The individual is obligated to redo unsatisfactory work for no additional compensation or is subject to a monetary penalty for unsatisfactory work.
The services performed by the individual do not directly relate to the activities conducted by the employing unit retaining the services.
The individual may realize a profit or suffer a loss under contracts to perform such services.
The individual has recurring business liabilities or obligations.
The individual is not economically dependent on a particular employing unit with respect to the services being performed.
The individual advertises or otherwise holds himself or herself out as being in business.