Optimizing for 1099 vs. W2

searcher profile

March 29, 2022

by a searcher from Stanford University - Graduate School of Business in West Hollywood, CA 90069, USA

I am doing a non-SBA deal for a company with a small team and the owner will stay on part time. I'm trying to decide how to optimize between having her as a a W2 vs. a 1099 employee. I know this is mainly dictated by the work relationship (how many hours, is she 'controlled' by the company or free to do contract work elsewhere, etc.), but she's very much on the edge for all criteria, so now I want to optimize for what is best for the business - I'm mainly thinking costs but need to consider any qualitative factors such as non-competes.

Can anyone point me to resources I can dig into to determine the cost comparison? Is there someone I should reach out to to discuss this (for example, an HR specialist or an attorney or CPA)? Any guidance would be great!

0
4
140
Replies
4
commentor profile
Reply by a searcher
from Cornell University in Santa Barbara, CA, USA
Thomas - Not necessarily a cost consideration (unless you get hit with misclassification down the road) but definitely look into the regulatory impact of the classification, especially if the business and seller are in CA. There are various exemptions/work arounds you can use to shield yourself if you choose to go the 1099 route, which could be really beneficial if she is a fringe case from a classification standpoint. Happy to chat more on this if you like as I've got close ties to people who were involved in the regulations that CA adopted recently.
commentor profile
Reply by a searcher
from Columbia University in Saratoga, CA, USA
Thomas, the non compete issue is not affected by 1099 or W2. It is an agreement between the company and the person (employee or consultant). However, in certain states, non competes have to be narrowly tailored or it won't be enforceable so check w your state attorney for the boundaries of the non-compete terms. Over alll 1099 is better for the company, but if she meets the IRS definition of an employee, you may not have a choice
commentor profile
+2 more replies.
Join the discussion