Whether someone gets a 1099 or a W-2 isn't a preference — it's a classification with a legal answer, and getting it wrong is one of the most common ways small businesses end up owing back taxes and penalties they didn't see coming. Calling someone a contractor because it's simpler doesn't make them one.
What actually determines the answer
Classification comes down to control — how much say you have over when, where, and how the work gets done. Setting someone's schedule, providing their equipment, directing their day-to-day tasks, and having them work exclusively for you all point toward employee status, regardless of what the agreement calls them.
What a W-2 employee means for you
You withhold income tax, pay the employer's share of Social Security and Medicare, and typically handle unemployment insurance. It's more administrative overhead, but it's the correct classification whenever the control test points that way.
What a 1099 contractor means for you
Contractors handle their own taxes, and you simply report what you paid them if it crosses the annual threshold. Less overhead for you — but only if the classification is actually accurate, not just convenient.
What getting it wrong actually costs
Misclassifying an employee as a contractor can mean back payroll taxes, penalties, and retroactive benefits once it's caught — often during an audit triggered by something else entirely. This is one of the payroll mistakes that tends to surface months or years after the original decision was made, not immediately.
When in doubt, don't guess
If the classification isn't obvious, it's worth getting a second opinion before the working relationship starts, not after a 1099 has already gone out for a year of work that should have been on payroll.
Getting this right at the start is far cheaper than fixing it later. Setting up payroll correctly — including classification — is part of what S&C Bookkeeping handles for clients. Get in touch before you bring on your next hire or contractor, and we'll help you get the classification right the first time.