A 1099 vs. W-2 pay difference calculator can be a great tool for employers and hiring managers, but it’s also important to put these pay conversions within the larger context of your business structure and employment practices. When it comes to hiring workers as 1099 contractors vs. W-2 employees, assessing all the labor costs and payroll consequences is often more difficult than it first appears.
For one thing, on the macro-level, the sheer number of employees a business has can affect the IRS classifies that business and the types of tax incentives it offers. On the individual level, the nature and size of the employees’ benefit package also makes it difficult to come up with a simple formula for 1099 vs. W-2 pay differences. Not to mention any number of extra “perks” that may come with the job in a traditional employee role.
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With this in mind, here’s a roundup of the best 1099 vs. W-2 pay difference calculators:
1099 vs. W-2 Hourly Rate Difference
Businesses with very few employees and tight margins may not provide many, if any, employee benefits beyond certain federal and state-mandated insurance programs. Payroll taxes are one constant, however. As many people already know, 1099 contractors have to pay both the employee and employer portion of the payroll taxes. In the simplest case, you can simply add/subtract 7.65% (half of the total FICA taxes) to calculate the 1099 vs. W-2 hourly rate difference.
So, for example, a W-2 employee with no benefits and a wage of $25/hour would expect to make about $27/hour ($25 x 1.0765). A 1099 contractor making $35/hour would then expect to make about $32.50/hour ($35/1.0765). Of course, knowing the 1099 vs. W-2 hourly rate difference is rarely so simple when an employee’s annual salary and benefits package are also factors.
1099 vs. W-2 Pay Difference Calculator for Salary and Benefits
This forum from The Workplace Stack Exchange also points to an easy, if oversimplified, formula for calculating the 1099 vs. W-2 hourly rate difference. Assuming an average of two weeks’ missed work, you can take an employee’s current or would-be salary and divide it by 2000 to get a base hourly rate. From there, you’ll need to make some kind of accounting of the employee benefits, and this is where the forum is less helpful, suggesting that these benefits might be worth anywhere from an additional 25%-100% to the hourly rate.
That said, Bankrate provides a detailed breakdown of different employee benefits and how much these benefits represent as the percentage of pay for a $50,000 salary. Various industries may have different standards, but this tool can be used as a measuring stick for your existing benefits plan. It can also be used as a guide for quantifying different types of benefits for converting employee and contractor pay differences. We’ve also found interactive 1099 and W-2 pay difference calculators are a helpful resource for converting pay based on specific data points:
- Are you most interested in knowing how health benefits and insurance premiums impact this 1099 vs. W-2 pay conversion? Check out this interactive tool from View The Numbers.
- Are you instead struggling with how to compare vacation, sick days, and other types of paid time off with a reasonable allowance for contractors who, despite setting their own schedule, can be prone to burning out? Check out this resource from rate-calculators.com.
Other Types of 1099 vs. W-2 Pay Differences
- Who furbishes the supplies associated with the work production is one of the criteria for determining whether a worker is an employee or independent contractor. The easy access to mobile, digital communications (smart phones/laptops/etc.) is one of the ways in which the modern economy has created flexibility in classifying workers as employee or contractors. From online marketing to software development, all you need really need is some to plug in. On the other hand, these devices aren’t free. Company-issued phones, computers, and vehicles can definitely be considered as part of these 1099 vs. W-2 pay differences.
- More and more, the increased flexibility that comes with being a 1099 contractor is as much about working remotely as it is time schedules. For some people, it’s about beating city traffic and long work commutes. For others, a 1099 contractor position is appealing for the ability to look after the kids in some capacity, while also earning income. There may also be an opportunity to earn a good income, while living abroad or in far-flung locations with a lower cost of living. For employers, this means potentially being able to hire skilled labor at a discount.
- Job security and the concept of a steady income are also supposed to be part of this distinction, but it doesn’t always work that way. Loyalty tends to take a back seat when downsizing/mergers/automation is involved, for one reason or another. There are also plenty of skilled professionals who are in high demand and who choose to work as an independent contractor.
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