When it comes to working with healthcare staffing agencies, understanding the difference between W-2 and 1099 pay structures is extremely important. While both options offer unique advantages, the way you are paid can impact your tax obligations, benefits, and overall financial picture.
This guide breaks down the differences between W-2 and 1099 pay, so you can make an informed decision about your career and financial well-being.
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What is a W-2 vs. 1099 Pay Structure?
Let’s take a look at what W-2 and 1099 mean.
In a W-2 pay structure, employees are considered employees of the agency. The agency will withhold taxes from your paycheck to help cover federal and state taxes. W-2 employees are also eligible for benefits like health insurance, retirement plans, and paid time off, but this depends on what the specific agency offers.
If you work under the 1099 pay structure, you’re considered an independent contractor. This means you will be responsible for paying your taxes, including self-employment taxes. 1099 workers are not eligible for benefits through their agency and will have to provide their own retirement savings and insurance needs.
How Staffing Agencies Handle W-2 vs. 1099 Pay
Depending on which staffing agency you work for, you’ll either be paid as a 1099 contractor or a W-2 employee. Here’s how that affects your finances:
Taxes and Withholdings
Staffing agencies handle tax withholdings for you, making filing taxes at the end of the year easier. This also means that you won’t need to worry about filing quarterly taxes.
As we already briefly mentioned, 1099 contractors are responsible for paying their taxes. This includes income and self-employment taxes (which can add up quickly).
If you go the 1099 route, you’ll need a strategy for keeping track of your income and expenses so you don’t have any surprises during tax season.
Benefits and Retirement Plans
The biggest advantage of working as a W-2 nurse is that you have access to company benefits. Cascade Health Services is a W-2 staffing agency, and we offer benefits like health insurance, time off, and a retirement savings plan. These benefits not only help us retain a higher-quality workforce but also increase our overall compensation.
Independent contractors don’t receive any benefits from their agency. This can get really expensive if you need benefits. According to an article by QuickBooks, 1099 contractors need to make 30% more than a W-2 employee to make up for benefits.
Job Stability and Flexibility
There is a misconception that in the PRN nursing world, 1099 agencies offer more flexibility than W-2 agencies since 1099 nurses are self-employed.
In reality, W-2 nurses have a huge advantage over 1099 contractors. As a W-2 employee, you’ll have a staffing team working alongside you to make sure you always have work when you need it. But, you also still have the freedom to work when and where you want.
1099 nurses on the other hand have to take the time to find and bid on shifts–which sometimes go to a different 1099 contractor willing to do the work for less.
Hourly Pay vs. Contract Rate
Nurses working under a W-2 structure are generally paid a high hourly wage, with the added benefit of tax withholdings and other employment perks. The rate can sometimes be slightly lower than a 1099 contractor but it’s easily offset by the convenience of taxes and benefits being taken care of.
Sometimes 1099 contractors are paid a higher hourly rate than W-2, but it’s usually not enough to add up to the 30% increase QuickBooks recommends.
It’s important I also mention that the additional pay comes with added responsibilities, such as setting aside money for taxes and handling your own healthcare and retirement plans.
What’s right for you?
Deciding between W-2 and 1099 pay comes down to your career goals and personal preferences. Here are some things to consider:
- If you value the freedom of choosing your own shifts, stability, benefits, and having taxes taken care of for you, a W-2 position might be the right fit.
- If you prefer the freedom to set your rates and enjoy higher pay (in exchange for more financial responsibility), then a 1099 position may be more appealing.
Understanding the differences between W-2 and 1099 pay structures is important when working with healthcare staffing agencies. While both options offer flexibility, it’s important to weigh the trade-offs regarding taxes, benefits, and pay rates.
