They’re letting me decide between being a part-time W2 employee or a 1099 contractor. I’ve read a number of related posts on this subject and W2 is often the winner, but my particular circumstances have me thinking 1099 will be the best option so I'm curious for feedback and advice.
With either option, I'll be working roughly 20 hours/week or 80 hours/month.
Reasons to do W2:
- I’d be a part-time employee and eligible for medical/dental/vision benefits. However, their employer contribution is only $350/month and I could get a comparable plan through Covered California for only $400 more per month than I'm currently paying.
- I'd have access to a 401k, but there's no employer match and it has poor investment options. I could contribute more to a Solo 401k if I were 1099 and would have better options.
- I'd have access to a HDHP with an HSA, but there's no employer match and I could stay on the current plan for 18 months with COBRA or switch to an HDHP with HSA through Covered California
- I'd be eligible for a 10% quarterly bonus (10% of that quarter’s salary aka 2.5% of annual salary) if we meet performance objectives (I could try to negotiate this as a 1099 contractor, too)
- They’ll pay me a ~25% higher rate to compensate for the lack of benefits, increased liability, having to pay more payroll taxes, etc.
- I’d be able to increase my tax deductions, since I could factor in my home office/utilities/etc (don't think I can do this if I I'm W2, since my office would be used partially for "regular employment" and partially for my consulting business)
- Could contribute more to retirement savings if I’d like via a Solo 401k
- It’d be easier to decrease or increase my hours (and thus compensation) if I want to. Regardless of whether I go 1099 or W2, they’d like me to aim for 80 hours/month (20 hours/week), but they’re happy with me working more or less if needed (even 40 hours/week) if I want to. This could be excellent as a 1099 contractor:
- If my consulting business picks up (and other clients are willing to pay me more $) then as a 1099 contractor it'd be easier to work fewer hours for this company and just bill them for fewer hours (we'd still have to discuss it, of course, but it'd be easier to execute than as a W2 employee).
- If my consulting business slows down (and I have time to spare and could use the cash), then as a 1099 contractor it'd be easier to work more hours in one month and then go back down to my usual number the next month. If I were a salaried W2 employee then I don't see how this could work
- I'd have more flexibility on taking vacation (very important to me), even if it means it's unpaid. This is one of those companies that has an “Unlimited PTO” policy that doesn't actually exist; they actively discourage people from taking time off and employees struggle to get more than 2 weeks approved per year. I, however, am looking to take full advantage of finally being self-employed and am committed to taking off at least 4 weeks per year. I've discussed this with the employer and they said that if I was a W2 employee they'd just ask that I work more hours the week before or after to make up for it (e.g. work 0 hours during the vacation week and an extra 20 hours the next week to make up for it.) This effectively means that I wouldn't actually be getting PTO as a W2 employee (since I'd have to make up for the hours), which is pretty lame. I'm also nervous about what happens if my wife and I decide to take a 3 week vacation. I'd rather have that be unpaid vacation and work just 20 hours that month, rather than having them deny my request or having to work insane hours before/after the vacation to make up for the lost time
- This is purely psychological, but I’d feel more independent as a 1099 contractor, which is half the reason I'm switching to consulting in the first place
- Is it just me, or is the 1099 the obvious option for my situation as long as they'll pay me ~25% more than as a W2 employee?
- My wife and I plan to buy a house in the next 9-18 months; do you think a mortgage lender may be more reluctant to approve a loan for someone with 1099 income vs. W2 income? We have 20% down payment + a 18 month emergency fund in CDs, but consulting income will vary month to month and may be seen as less reliable income
Edit: just to clarify, regardless of whether I choose to be W2 or 1099 with this client, I'll be a 1099 contractor to other clients