Many field service companies are still deciding whether to hire a 1099 contractor or build up their team with W2 workers when looking to build a staff. This decision is particularly difficult in the current landscape, due to the talent shortage in the field service workforce. Finding and selecting the best skilled labor for your company’s needs is more challenging than ever. However, it doesn’t need to be.
In this blog, we will demystify the similarities and differences between each type of contract, weigh their pros and cons, and ultimately equip you with the knowledge to both find and select the right workers for your needs.
Defining Independent Contractor vs. Employee: What is the Difference?
An independent contractor, or 1099 worker, is a person who provides services to a company or individual but is not an employee of that company or individual. The contractor is self-employed and is responsible for managing their own business, which includes:
- Paying their taxes
- Providing their tools and equipment
- Setting their work schedule
A W2 worker, on the other hand, is a person who is hired to perform a job for a company or individual on an ongoing basis.
Unlike independent contractors, employees are:
- Given specific job duties
- Provided with tools and equipment
- Assigned a work schedule
Employers are responsible for withholding taxes from employees' paychecks and providing employee benefits such as health insurance, retirement plans, and paid time off.
Pros and Cons of 1099 Contract Workers in Field Service
With 27% of all service workers in the US being independent contractors, the contract employee vs. independent contractor debate is now more complex than it once was.
Hiring a select group of skilled independent contractors is a great way to assist your employed workforce in meeting your clients’ evolving and varied needs.
Like most of the things we hold dear, outsourcing to independent contractors has its advantages and disadvantages. Some of these include:
- Help companies scale service to meet the fluctuating customer demand
- Ability to reach and service additional geographic ranges
- Greater flexibility for project-based work
- Allows employment of specialized experts for short-term projects
- Obviates the need to pay for benefits such as healthcare or paid time off
- Eliminates responsibility for withholding taxes or providing payroll administration
- Sometimes saves money on overhead costs such as tools or equipment
- Limited control over the contractor in comparison to an employee
- Potential for legal and financial consequences as the result of a misclassification
- Could face potential fines and penalties if the worker is deemed an employee by the IRS or state agencies
- If a project takes longer than expected or if the contractor's rate is higher than expected, potential to pay more than would with regular employees
- Less opportunity to train and develop the worker (depending on the type of software being used to manage contractors)
Pros and Cons of W2 Employees in Field Service
While W2 workers are incentivized to be invested in a company’s success, they can also prove a burden, especially to small businesses with smaller budgets than their counterparts. The pros and cons of W2 employees include:
- More control over the worker's schedule, work hours, and job duties
- Reduced risk of misclassification, avoiding potential legal and financial consequences
- Greater loyalty and investment in the company's success
- Ability to offer benefits such as healthcare paid time off, and retirement plans, potentially improving employee retention and job satisfaction
- Greater administrative burden in terms of payroll administration, tax withholding, and benefits management
- Potential for higher overhead costs, including office space, equipment, and benefits
- Reduced flexibility in scaling services to meet changing customer needs
- Potential for higher turnover and recruitment costs if the employee leaves the company
Forming a Blended Workforce is the Best of Both Worlds
Having examined the 1099 vs W2 pros and cons, it is clear that a truly great field service company has a healthy balance of both of these types of employees in their workforce. Known as a blended workforce, this combination of workers provides the best value for a field service organization.
Utilizing a blended workforce has a slew of benefits, the largest of which includes improved customer satisfaction and geographical reach. With the best of both worlds, companies can flexibly staff for short-term or project-based work while maintaining a core team of W2 employees for ongoing operations. They can provide specialized expertise through independent contractors, leading to better field service metrics, including an improved first-time fix rate which drives up overall customer satisfaction.
Maintaining a stable team of W2 employees who are familiar with the company's policies and procedures is vital to the embodiment of your brand. By offering benefits such as healthcare and retirement plans to these employees, you as a company can improve employee morale and loyalty. This stability makes room for the potential cost savings of utilizing independent contractors for short-term or specialized work.
Furthermore, a blended team reduces the risk of misclassification. With everyone fulfilling a clear role, it is easier to correctly classify workers as either independent contractors or employees based on the specific nature of the work being performed. An employer’s ability to maintain compliance with labor laws and regulations by properly classifying and compensating workers based on their employment status is vital, and second nature with a mixed team.
Workforce Management with Both 1099 and W2 Workers
Managing a blended workforce doesn’t need to be complicated. With ServicePower’s intelligent field service management software, you can seamlessly manage jobs across 1099 and W2 workers. Not to mention, if you don’t want to hire 1099 workers yourself, ServicePower has a certified contractor network of 1099 workers that you can tap into to augment your employed workforce. With comprehensive vetting, onboarding, and training, you can expect the highest quality of work, exactly when you need it.
Discover ServicePower’s intelligent field service management suite.