Just to add a comment. The nominee for US Secretary of the Treasury ,
Timothy Geithner, apparently did not understand the implications of a 1099
vs a W2.
Environmental Specialist III
Dominion, Environmental Biology
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Phone:804-271-5313, Fax: 804-271-2977
Sent by: "SAS(r) SAS-L@LISTSERV.UGA.EDU
Re: Contracting: W2 or 1099?
Please respond to
First, I would encourage you to join the group the SAS_Learner and Nat
mentioned. There have been discussions there on this topic. And many/most
the folks on that list are consultants who are with small firms or are
Next, while I would agree with many of Andrew's points, I have to say that
the issue of whether incorporating or not makes sense for you is something
that you really do need to get legal/accounting advice on.
If you plan to work as a "consultant" for the foreseeable future, spending
few dollars to get expert advice is well worth it. And even if you never
need any protection, consider it as insurance.
I would also encourage you to avoid the "download the paperwork" from the
internet approach as that does nothing but enrich someone else. For
I know of one person who downloaded the standard contract they use from one
such site. And the first time he had an issue with a client not-paying the
bill (that was clearly due), he had to engage an attorney who took one look
at the contract and said that due to a number of the terms in the contract
that he would end up spending more money filing the claim than he would be
able to reasonably recover (even though he had a airtight case). Andrew's
story about his friend bears this out. You might read that story and
conclude that incorporating is not worthwhile; you could also read it as
make sure you incorporate in the right way using the right tools.
So, bottom line, is that I won't advise you whether you should incorporate
or not. What I will say is that when I went out on my own (after spending
approximately 25 years working for and running consulting organizations), I
created a single member LLC (don't plan to ever hire any employees - been
there, done that, don't need to do it again), have an accountant who does
taxes every year, purchased both general and professional liability
insurance. Does all of that cost me $$s? Of course, but I look at the
dollars spent on an annual basis it adds up to less than a weeks worth of
So my advice is to get professional advice. But others may disagree and
From: SAS(r) Discussion [mailto:SAS-L@LISTSERV.UGA.EDU] On Behalf Of Andrew
Karp, Sierra Information Services
Sent: Monday, January 26, 2009 12:13 PM
Subject: Re: Contracting: W2 or 1099?
In a nutshell , "being paid on a W-2" means you have an employee/ employer
relationship with the entity that is paying you. If a recruiter says "I
will pay you on a W-2," that means you become an employee of the recruitery
(or the client itself) for the duration of the contract. The employer pays
your share of social security taxes and withholds taxes from your paycheck,
etc. As a "W-2 employee" you MAY be eligible for health insurance and
benefits offered by th employer to its employees, as well as unemployment
compensation at the end of the contract.
If you are "paid on a 1099" you are an independent contractor, and
responsible for paying both the employee and employer share of social
security taxes. You may also be required to purchase your own liability
You don't have to "form a corporation" to be paid "on a 1099 basis,"
BUT some clients want to see evidence that you are in fact an independent
business, and forming a corporation is one way to do
that. Lots of miscellaneous income is reported on 1099s, such as
honoraria for speaking at a meeting, payments to review a book for a
publisher, or short term work assignments. If you have kids, and a
babysitter whom you pay more than (I think) $600 a year, you have to give
her a 1099 documenting what you've paid her. The babysitter does not need
to "form a corporation."
BUT, setting up a corporation can be time consuming and expensive,
on what state you live in (here in the USA). One important reason why
people incorporate when they set up a new business is to create the
"corporate veil" between their personal assets and their business assets.
If there is litigation over some issue, one of the first things the other
side is going to do is attempt to "pierce the corporate veil" and try to
come after your personal assets. For example, that happened to a friend of
mine who is a dentist who formed a small corproation for his practice that
included two or three other dentists. When one of other dentists sued the
remaining owners (I can't recall the details of the suit now), the first
thing the plaintiff did was attack the legal basis of the corporation in an
attempt to expose the personal assets of the defendants. Among other
"attacks" was that the "corporation" was formed using an online tool, was
incoporation in Delaware even though all business was done in California,
In the SAS programming world, some pharmas (and other companies) will only
bring short-term workers in to their organizations if they are
"W2 employees" of a larger placement/recruitment firm. This arrangements,
while often difficult for the programmer, give the employer a certain level
of legal protection against claims that "contractors" were really
"employees," etc. If the recruiter offers you the "payment on a 1099"
option you will most likely have to provide proof to the recruiter, and the
client, that you have liability and/or errors and omissions insurance,
can be expensive to obtain.
In the past, I've mentioned my strong feeling that it makes no sense "to
incorporate" to become a SAS Software contractor doing on-site work for
clients, especially if you anticipate having just one or two short term
jobs. It isn't worth it. I think it would make more sense to do a W2
arrangement with the recruiting firm. While you may be paid less per hour,
your taxes are being paid and many of the unpleasant bits of independent
contracting (e.g., payroll, making tax payments, etc) are handled by
And, there is a chance you can get health insurance, paid vacations, sick
leave, etc while you are "on a W2" with the client. In the long term, I do
not think there is any financial benefit to going through the steps to
incoporate for the purpose of a short term contract as a SAS programmer for
a pharma company.
I hope this information is of use to you.
Sierra Information Services
On Jan 26, 5:36 am, John Uebersax <jsueber...@gmail.com> wrote:
> Recruiters often ask me, "do you want to work on a W2 or a 1099
> Can someone help me understand what is required to work on a 1099
> 1. Must I take legal steps to form a corporation?
> 2. Or can I simply operate as a sole-proprietorship?
> 3. I mainly work in the pharma area. Will companies do business with
> me directly as a contractor if I am not incorporated?
> 4. Or perhaps it might be better to ask the question in an open-ended
> way: what steps are required to contract directly with a pharma
> If there's a better discussion group in which to ask these questions,
> please let me know (although I suppose there are many other people
> here who are intestested in this topic).
> Thanks in advance
> John Uebersax
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