1099 vs W2: Which Is Preferable To Hire For As An Agency Owner

Building a Business

“Sales cures all...”

If you’ve followed me for a while, you’ve heard me say that plenty of times.

But when you’re trying to scale your agency, it gets to the point where other factors also come into play:

Running Jakt taught me the importance of building a great team.

Look, as the business owner or CEO, your team is the foundation that will support your growth.

You need not only talented people but also human beings whose values are aligned with yours.

In the early days, this is all the more important.

However, there’s a question many agency owners begin to ask themselves here:

Should they hire W2s (full-time employees) or 1099s (contractors)?

Which ones make the most sense and at what times?

Over the years while I grew my agency, I developed a few rules of thumb when looking at this.

When to hire W2s:

- People who are going to help you with the design of the business for long-term success (e.g. helping you build systems, processes, helping you with management, etc).

W2s are dedicated full-time to your company alone. They will be more focused on the company success and for design of business, stuff I prefer to have in-house.

A 1099 by nature is a gig worker and therefore not incentivized to help your company with that stuff. They are more concerned with doing a job and getting paid for it vs the success of your company long term.

- People who are critical to the operation / delivery of the service.

If there is a role that is pivotal to the customer experience, you should bring that in house. With 1099s, you legally can’t dictate when they work, how they work, etc. But with W2s, you can.

So if you want control over the experience that gets delivered, following your processes, your quality standards, providing them training, etc... make that a W2.

You can ask 1099 to follow your process, but it’s generally more difficult to do this. This is especially true with positions that require some EQ. For example, account management.

You might want to train your employees on how to do a proper onboarding, how to handle client communication, etc. You can’t do this with 1099.

- When there’s a role that is important to your delivery and you have so much work that economically it makes sense to bring it in house.

Naturally, 1099s will charge more per hour because they are contractors. At some point it sometimes makes sense to bring it in-house from an economic point of view. But only do this when the role is something that you foresee having for a long time to come.

- When you want people bought into the culture / helping shape it.

Culture of a company is different with W2s vs 1099s employees because W2s are dedicated full time.

- When you want the speed, efficiency, and superior results that come with a team.

A team that constantly works together produces better results. A team that is made up of walk ons won’t.

Think of any sports team. Why do they get better? Because they keep playing with each other over and over again.

That doesn’t mean that everyone needs to be part of the team though. You can have some people part of the full-time team and some people part of the squad that you draft up (i.e., 1099s) so then when mixed in with full-time it all works pretty well.

When to hire 1099s:

- When you need specialists.

- When you want the financial flexibility of spinning up and spinning down people.

- When you are ok with them running their own process to get the job done.

- When you have roles that don’t make sense as full time because there’s not enough work to justify it.

- When you have roles that you don’t expect to help you build the long-term future of the company but you need more short-term work.

- When you aren’t concerned about them being bought into the long-term vision, success and culture of the company.

At a high level, W2s are great when you want people dedicated to helping you with the long-term success of the business.

On the other hand, 1099s are great for having financial flexibility, bringing in specialists, and people that will focus on short term needs / jobs to be done.

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