What are the advantages/disadvantages of being a 1099 "employee"?

[mom2mikel]

My DH is looking for a new sales job and found one that really interests him. However, he would not be an employee of the company - a 1099 contractor.

We do not need benefits as I get those through my employer. Can someone please explain the good and bad to being a 1099 employee.

TIA!

 

[smokeyblue]

The biggest downfall of being a contract employee is not getting benefits. That is why companies like to hire "1099" contractors.

The perks? More pay; companies usally pay more because they don't have to pay out for a benefits package. There will be numerous tax write offs. In essenence your husband would now be his own business. You can write off travel to and from work and any other legal write-offs.

Since you have insurance it could be a good deal for you. Just make sure you are putting some of his income into retirement savings.

 

[mrsklamc]

And make sure he qualifies to be a 1099 employee. Companies like to decide that employees just 'do' when it may not actually be the case, legally.

 

[crisi]

He'll need to pay his own self employment taxes (the portion of FICA that the employer normally pays). He'll likely need to file quarterly. And he won't qualify for unemployment if he gets laid off. He won't get paid vacations....functionally, he'll be self employed.

Watch the write offs though. If this is his only client, he probably can't write off travel and survive an audit.

 

[hambirg]

He'll need to pay his own self employment taxes (the portion of FICA that the employer normally pays). He'll likely need to file quarterly. And he won't qualify for unemployment if he gets laid off. He won't get paid vacations....functionally, he'll be self employed.

Watch the write offs though. If this is his only client, he probably can't write off travel and survive an audit.

This. And you will need to sock away roughly 30% for quarterly taxes. Is the pay that much more? If not than it's not a good deal.

 

[disneygirl 17]

I am not 100% sure on this but if he loses his job - no unemployment is given - right? Someone please correct me if I am wrong.

 

[KerTggr]

Estimating tax payments can be a pain! Especially if he will be making more/less than a previous job. We are in a similar situation and have had to go to our accountant a couple times as my DH's salary has changed to get an estimate on our tas payments so we don't get dinged too badly at the end of the year. That being said, we also prefer to owe @ teh end of the year instead of getting money back (would rather earn the interest on it ourselves). So we have always owed something.

Other than that we haven't experienced any other issues with it. He does get paid more than FTE's with the same position and actually gets more flexibility with some of the work "politics."

 

[crisi]

Another thing to be aware of is that one of the reasons that corporatins hire 1099 employees is that they are really easy to let go of. I worked as a contractor through the 90s (it was a great gig then), and more than once there was a budget crunch quarter and one solution (at multiple companies) was "well, all contractors will have their last day be Friday." Laying off employees is a much bigger deal. So, while being a 1099 employee can have some advantages, and is certainly better than no job at all, it isn't a situation I'd look at as a long term solution.

 

[AlbertZeroK]

many states also, if he is a contractor, if the company decides not to pay him or he has a pay dispute, he will not be able to contact the labor board for assistance, he must sue in court. Prepayment on taxes catches some people too.

Sales though? My dad did that, not good results.

 

[Acklander]

Also, if self employed, depending on the type of work you might be responsible for your own Workman's comp insurance and show proof that you have it. Definitely something to clarify before taking the job.

 

[mjejj]

I would suggest talking with a CPA. My husband makes a significant portion of his income as 1099 income and there were a few years where we were killed in taxes. Our CPA set us up as an S corp ( I have no idea what this means) but it has really helped out with the amount of taxes owed. If you can pay quarterly that is helpful too. Another thing we did was to increase the amount of tax withheld from our salaried jobs (don't know if you could do that or not) just to decrease the sting of what we owed. Last year, we actually got a refund of $39 dollars. I know that sounds really pathetic but we were thrilled.

 

[carebee21]

Another thing to keep in mind is the payrate. If you're an employee of the company, even a commissioned employee, your salary rate has to equal minimum wage for the amount of hours you have worked, so if you haven't sold enough that week or pay period, you're at least entitled to minimum wage. With a 1099 position, this isn't the case. If you've agreed to commission and you don't sell, you get nothing. This is an important point with sales positions. Additionally, they can change the commission rate/pay rate anytime they want to. So, if your husband agrees to a 10% commission rate, and they see him selling a ton, they can at any time, tell him they've lowered the commission to 7% or 5%. They have to pay him for the work done under the old rate, but any work going forward would be at the new rate. Although it's not done that often, it does happen and some companies are just shady like that.

 

[scrapquitler]

add into the mix of things you have to consider: No paid time off. That means no paid sick days, no paid vacation, no paid holidays.

Oh, and depending on the type of work you do and the laws of your particular state, you might need to charge the 'client' sales tax. In CT, what my husband does is considered a taxable service, so he has to collect sales tax from the company he does the work for, and then we need to file a sales tax return with the state on an annual basis.

And as a 1099 worker you might also have to provide your 'client' (I say that because he's not your 'employer') with proof that you are carrying liability insurance and possibly errors and omissions insurance depending on the type of work you do.

All these things add up to extra $$$$$$ that you have to pay out, so the pay rate has to increase accordingly. After you start subracting all these things out of what seems to be a high hourly rate, you might find that it isn't all that appealing afterall.

 

[mom2mikel]

Thanks so much for all of the info. He's been in the mortgage industry for the past 6 years working commission only so we are used to no benefits/paid time off, etc.

I'll have him talk to our CPA friend to ask about the liability and E&O insurance.

Decisions, decisions!!!

 

[TandLMommy28]

The worst part for me is paying an extra 7.5% in taxes over someone with a normal job. I cry every year at tax time when I think about it. Yuck. When you are employed, your employer pays that 7.5%, but when you are getting a 1099, you are your own employer and get to pay it yourself. YUCK. For me, that's the major downfall but the perks (staying home with my kids and working from the couch!) are worth it.

 

[Pigeon]

I did it for a period of time. Honestly, there was no upside and I stopped as soon as I could find regular job. With the tax situation and the lack of benefits and vacation, it was just awful.