In today’s dynamic employment market, contract recruitment holds untapped potential – making contractors more essential than ever. For recruiters, understanding the different types of contractors in the US isn’t just helpful – it’s essential.
The lines between independent contractor, W-2 employee, and Corp-to-Corp worker are increasingly blurred – so we have laid out the essentials for you to understand.
W-2 Contract Employees
Who they are: A W-2 is someone who is fully employed by way of an employment agreement and offer letter – in recruitment/staffing, this is typically facilitated by an Employer of Record (EOR) – and then placed on assignment with your client. While they’re not a permanent employee of your client, they are considered a legal employee of entity that pays them. This means they get a regular paycheck with taxes deducted and can often access employee benefits.
Insurance & Benefits
The employing agency or EOR covers the necessary insurances (e.g., health, liability) and provides benefits such as healthcare plans, 401(k) contributions, and paid time off.
Taxes
The employer handles federal, state, and local tax deductions. The employee still files a personal tax return (with a CPA’s guidance).
Pay Cycle
Weekly, based on submitted hours.
This option is often ideal for the staffing firm in high occupational risk scenarios and to the worker when they are in need of benefits and/or do not have the need to take tax write-offs which are available to the other types of contractors.
Independent Contractors (1099 Contractors)
Who they are: Independent contractors are self-employed professionals who run their own show – no formal business entity required. They invoice for their time or deliverables and are paid directly into a personal bank account. Many freelancers, consultants, and gig workers fall into this category.
Insurance & Benefits
They must arrange and pay for their own insurance – typically General Liability, Professional Liability, and sometimes Workers’ Compensation, depending on state rules. Benefits like healthcare, retirement savings, and paid time off are entirely their responsibility.
Taxes
They pay their own taxes, often setting aside a portion of earnings for quarterly estimated payments to avoid penalties.
Pay Cycle
Agreed with the client, but in staffing situations, payment is often weekly upon approval of hours.
Independent contractors have the most flexibility but also take on the most administrative responsibility. The IRS has a useful guide on independent contractor rules.
Corp-to-Corp (C2C) Contractors
Who they are: A Corp-to-Corp arrangement involves two business entities contracting with each other. The worker (individual) is paid by the corp. How the worker is engaged with the corp will depend on their relationship, sometimes the worker is the sole owner of the corp or the worker may even be a W-2 employee of the corp.
Insurance & Benefits
The contractor’s business entity is responsible for securing and maintaining all required insurances. Employee benefits are handled internally – if they have employees, they must provide benefits as required by law.
Taxes
Filed by the business entity; contractors should consult a CPA for compliance.
Pay Cycle
Weekly, based on approved hours.
C2C is often preferred in IT and consulting industries for larger projects where contractors already have a legal entity and want to retain maximum control over their business. Here’s a deeper look at Corp-to-Corp contracting.
The EOR Advantage
An Employer of Record (EOR) helps recruitment firms compliantly place contractors without taking on the legal responsibility of employment. They can play the role of your back-office compliance partner and:
- Hire and onboard the worker as a W-2 employee
- Handle payroll, taxes, and benefits
- Ensure compliance across all 50 states
- Let you offer more value to your clients without growing your in-house HR or legal team
Whether you’re expanding placements across multiple states or dealing with high-risk contractor roles, an EOR can be the difference between a smooth engagement and a legal headache. If you’re ready to start your EOR journey, get in touch with our team today.