1099 vs. W2 – 7 Reasons to be an Independent Contractor

There are two types of people in the workforce. Those who understand independent contracting and have seen the light of the 1099, and those who work directly for a company on a W-2. Most of the people in the second group are under the impression that their employer cares about them and that being an employee brings a kind of security that you won’t get as a contractor. I hope that the following 7 reasons help those in a W2 situation (where there is an opportunity for a 1099) to see the light and that this post can be a catalyst for change for someone, somewhere. Your thoughts in the comments are greatly appreciated!

  1. Money
    As outrageous as it may seem it is not uncommon for independent contractors to make nearly twice the income that they could have made with a conventional job. In the IT world for instance it is not out of the ordinary for a programmer making 50K salaried a year to charge companies $50/hr for his services. Assuming the there isn’t an excess of available talent looking for work this programmer shouldn’t have a hard time staying busy for 50 Weeks out of the year.
  2. Overtime
    Salaried employees enjoy being salaried because they know that there is consistency in the amount of money they will be bringing home week after week. Employers also like the consistency as it makes for easy financial planning. However, what happens to most salaried employees when something goes wrong at work and they need to work a weekend or a 50+ hour week? They still get that same check! It doesn’t take long before most bosses recognize which employees they can abuse with overtime without getting pushback and they do this until the employee feels underpaid and overworked. I’ve been here and it is what pushed me into Independent Contracting.
  3. Taxes
    Taxes can be a questionable area of savings. However the question isn’t whether or not you get savings as an independent contractor it is how much savings is realized by various accounting practices. I won’t go too far into this but you can be certain that with itemized deductions you will pay less into taxes than you have previously working as a W2 employee. Starting your own Consulting/Contracting business is an additional way that tax savings and maximizing retirement benefits can be increased.
  4. Freedom
    Freedom is certainly more important to some than others. While it is true that an employer will give you paid time off in a salaried job, how much say do you have over this? As an independent contractor you make your own determination as to how much time you want to take off. The counter argument to this is that a employer pays you even when you are on vacation. I will refer those with that argument back to Reason #1.
  5. No “Performance Reviews”
    This one is simple. Since most would agree that performance reviews and “goal setting” tend to be loaded with crap in most companies I think we can all agree that not having to deal with this is a huge plus. The reason that employers don’t subject contractors to these this type of yearly review is that generally contractors are hired hands there to get a job done and if they aren’t doing a good enough job they are let go. So I guess it should be noted that if you are the kind of person that coasts along contracting may not be for you.
  6. Insurance Benefits
    This isn’t so much a reason as it is an excuse that most people use when discussing why they stay employed full-time on a salaried w2 basis. The truth is that insurance, as expensive as it can be, is still very available to the self employed and when you are making double the money can you really not afford this?
  7. Job Security
    Job security is a joke and given the downsizing and cuts throughout the nation in the past couple of years it should be very apparent that you are no more safe in a full-time job than you are in a contract. If you want job security (full-time or contractor) I’d suggest reading Linchpin: Are You Indispensable? by Seth Godin. This book teaches you how to turn yourself into the type of employee that your employer can’t afford to let go of!

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