What is a W2 contract?
What does it mean to have a W2 contract job?
How is it different from a regular employment contract?
We will look at what is a W2 contract, what W2 refers to, how a contract to hire W2 relationship works, understand the difference between a W2 contract and independent contractors or employees, compare Corp to Corp vs W2 and more!
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Table of Contents
What is W2 contract
What is a W2 contract position?
A W2 contract is a type of contract where a person is hired by a staffing agency and placed in an organization to fill a short-term position or handle a certain project for a specific period of time.
A W2 contract is sort of a hybrid between an independent contractor’s contract and an employment contract.
When a person is hired by a company as a regular employee, he or she is paid a salary and is asked to perform the duties outlined in the employment contract.
When a person is engaged as a contractor, the person works independently and does not report to his or her client the same way an employee reports to his or her employer.
The independent consultant or contractor’s job is to handle a specific mandate, task or project in exchange for defined fees.
A contract W2 candidate or contract W2 employee means a person found or employed by a work agency and getting paid by the agency while performing his or her work for a company or business dealing with the staffing agency.
In this setup, a person is the employee of a staffing agency but a contractor for the company he or she is working.
A contract W2 is a hybrid of both an “employee” status and a “contractor” status.
What does W2 mean
What is a W2 position in US?
What does it mean to be a W2 employee?
Do you get a W2 for contract work?
W2 is actually a tax form required by the IRS when a person is employed by a company as an employee.
This is to be contrasted with the 1099 tax form where an independent consultant or independent contract getting service fees will be issued a 1099 form.
In essence, W2 is the tax form that refers to “employees” and 1099 refers to “independent contractors”.
Now that you understand what W2 means, perhaps it’s contradictory to say “W2 contractor” which appears to refer to both an employee and a contractor?
In fact, that’s what W2 contract means.
A W2 consultant means a person who is hired by a staffing agency (an employee) but working temporarily in a designated company (contractor) who is the client of the staffing agency.
Working as a W2 contractor
What does it mean to work as a W2 contractor?
Becoming a W2 contractor is similar to having a full-time job or being a full-time employee.
The only difference is that instead of having full-time employment in the same company, you are a temporary worker where you may move between different organizations.
In a W2 position, you are typically employed by a staffing agency having contracts with different companies who need to fill a short-term or contract position.
The companies pay the staffing agency a fee or compensation in exchange for the staffing agencies to recruit, hire and propose the proper candidate to get the job done.
This is beneficial for companies as they outsource the recruitment and hiring process for candidates.
It’s also beneficial for candidates looking for a full-time job but not sure if they want to commit to working for a specific company for now or want to get experience in different organizations before settling down with one on a permanent basis.
W2 contractor benefits
What are the benefits of a W2 contract position?
Working on a W2 contract provides many advantages to the W2 contractor to both the contractors and companies engaging the services of a contractor.
The main benefits are:
- W2 contractors have the expertise to get to work quickly when placed in an organization
- W2 contract positions are less expensive for companies to fill
- W2 consultants have the ability to work for different companies and experience different industries, cultures and work responsibilities
- The W2 contract is for a set period of time so both the company and the W2 consultant can do a “test drive” to see if there’s a good fit between them
W2 position drawbacks
W2 contract employee positions do come with drawbacks.
Again, there are drawbacks for both the organization hiring on a W-2 contract and the individual assuming a W2 contract work.
The main disadvantages are:
- W2 consultants do not feel part of the company and are seen as “externals”
- Not having the time to settle into an organization, W2 workers do not have time to adapt to the company culture
- Considering the W2 positions are short-term in nature, a W2 worker may not have enough time to master the job
- A company will need to deal with several contract to hire resources for the same job function
- W2 contract may by without benefits
W2 vs C2C
What is the difference between a W2 contract vs Corp to Corp?
Both W2 workers and independent contractors provide valuable services to organizations but are different in many respects.
A W2 employee is a regular employee of a company.
A regular company employee is called a “W2 employee” as they eventually get a W2 tax form for reporting their salary to the IRS.
W2 jobs have the following characteristics:
- They are full-time employees of the same company
- They are on the company’s payroll and get a salary
- They do not take a commercial risk
- They are guaranteed a minimum wage
- They generally participate in the company’s benefit program
- They typically get vacation days
- They work under the supervision and governance of their employer
On the other hand, corp to corp (or C2C) refers to an individual working as an independent consultant or independent contractor for a company.
Consider an independent consultant as a “business” doing business with a company.
We refer to this as a “corp” to “corp” to suggest that it’s a business to business relationship.
C2C jobs have the following characteristics:
- They work for themselves as independent contractors
- They render services in exchange for a fee mutually negotiated in a commercial contract
- They are not on the company’s payroll
- They are not guaranteed a minimum wage
- They do not benefit from their client’s employee benefits
- They have to get their own health insurance and health coverage
In essence, a contractor is considered an independent business person who renders services for a profit (just like any other for-profit corporation).
W2 contract vs full time
What is a W2 contract compared to a full time job?
What is the difference between W2 and full time?
A contract to hire W2 is comparable to a full time job with the difference that a W2 contract is for a limited period of time while a full time job is generally permanent.
We are all familiar with employment contracts and individuals working for companies as “employees”.
These are people giving their time, experience and knowledge to a company on a full time basis in exchange for a salary.
On the other hand, further to a W2 contract, a person will give time, experience and knowledge to a company on demand, for a specific task or for a limited period of time.
Because a company is dealing with an independent contractor, they pay to get to choose with whom they will work, for what price and for how long.
Generally, the terms and conditions of the services are specifically defined in an independent consulting agreement.
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