There are two ways contractors participate in the technology workforce: either as W2 consultants or as independent contractors who have self-incorporated. Jobs tend to be the same whether you are a W2 consultant or self-incorporated, but each employment classification has its own benefits and downsides to consider.
When you are a W2 technology consultant, you are an employee of the organization representing you to the “end client.” The benefits to this are many, including:
- Your W2 status means your company pays half of the Social Security and Medical taxes on the money you earn at that position
- Your company takes care of estimating and withholding federal and state taxes on your income
- Your hours are often the same as the client’s—which may mean that you have a more standardized schedule and a better work/life balance than you might as a self-incorporated contractor
- You may receive benefits, like health and dental insurance or paid time off, as part of your negotiated compensation package
- Your job stability is stronger than it would be as a self-incorporated contractor—as a W2 consultant, it is less likely the contract will be terminated without warning (though it does occur)
You are responsible for reporting your hours, and then your manager at the client approves them. The staffing company handles billing for the hours. Some consultants find themselves paid only for their scheduled work instead of including any overtime they may experience. Typically, though, consultants who do not bill for overtime do so because they were not able to complete their standard responsibilities during the allotted work week.
Contractors who want more independence and autonomy typically choose to self-incorporate. When you self-incorporate, you become the sole employee of your own business, which then contracts services out to other companies (C2C). Individuals typically incorporate as an S-Corp, but some opt to incorporate as an LLC to reduce liability. We encourage you to talk with your certified public accountant before deciding to self-incorporate, to determine which corporation type is best for you and your line of work.
The benefits to being a self-incorporated technical contractor include:
- Earning a higher hourly rate—largely because your client is not responsible for taxes, payroll expenses, and benefits
- Being your own boss long-term
- Contracts are typically shorter in term than they are for W2 consultants, which can be a positive if you prefer frequently moving from one challenge to another
There can be downsides to being a self-incorporated tech contractor. These include:
- You are responsible for knowing when your contracts will end and finding new work to replace that contract—which can be akin to having a full time job on top of your existing job.
- You have to be the best: If you want to make top dollar, you have to specialize and be great at what you do.
- Any benefits you have, you have to pay for yourself: If you want a 401K, health insurance, or time off, you have to figure out how to pay for it.
- You may find yourself working long or unusual hours to get work done.
- You are responsible for invoicing your client and managing collections.
- Your taxes are also up to you to pay for. You’ll be classified as a 1099 or C2C contractor. The IRS charges penalties if you do not pay estimated quarterly taxes.
Before you make any decisions about whether to be a W2 consultant or self-incorporated, we encourage you to remember that you are not bound to that decision. Contractors often go between being a W2 consultant and self-incorporated depending on where they are in their careers, what projects they find, and what the policies are around C2C verses W2 that the companies they work with have in place.
Our JDC Group recruiters want to help you find the independent contracting or W2 position that is right for you. Talk to a recruiter today or search our available positions to learn what’s out there.