Converting from 1099 to W2 Costs?

by ghostoutlaw. Posted on Sep 12, 2020    0    19

I'm in the process of converting some people in my company from 1099 to W2. Everyone wants this, it's better for everyone in the short and long term.

The only issue I'm having is NO ONE will tell me what it's going to cost me. I have my exact payroll numbers historically and what it's going to and no one will even give me an estimate. Where can I figure out what this conversion will cost me? Just an estimate, I understand shit changes and it's not perfect. But get me close!



The cost of socialism.

MerryJustice 1

I ran a house cleaning business back in the late 90s-2006 and I switched back and forth a couple times. I paid hourly employees less than subs because I paid for their whole day and my portion of their payroll taxes. I eventually kept them as 1099s because they used their own cars and were out and about all day and it was impossible to constantly track them. Plus they liked the cash in hand. For a while I used Quickbooks and did paychecks using the software. It calculates everything for you. I’m sure there are better and cheaper software these days?

justbrowzingthru 1

Make sure to have payroll provider take care if taxes, they may also be able to help with workmans
Comp and healthcare. .

You will have to pay the employer portion of payroll taxes, Medicare and social security. Easy to that out.

Plus unemployment to fed and state. Which is dependent upon your industry. This is wild card.
We can’t help you there.

Payroll processing costs per pay period, payroll providers will tell you that.

If you are not providing workmans comp, start shopping policies or see if your payroll provider provides it and how much. We can’t help you there either, too many variables.

Healthcare if you are required to provide it, see if payroll processor provides it, if not starlet shipping.

Really the only thing you won’t be able to find out exactly is unemployment until you get your rate from the government.

No one wants to give exact until they start processing payroll as there are too many variables beyond social security and Medicare.

As someone posted before, probably ballpark 10-15%, before heathcare, but your industry could push that up due to workmans comp and unemployment.

Of course your staff will love it because you will start paying 1/2 their social security and Medicare, so raise!

kavalover86 1

Check out surepayroll. They were the cheapest I could find and have had no issues.

chair807 1

Use a full service payroll company, I like gusto. Messing up payroll taxes is no joke.

  ghostoutlaw 1

Yes, I am trying to work with Gusto. They are saying they cannot even give me estimates.

PantAaroN 1

Hey friend,

I am definitely not an expert in this area but have interviewed for 1099 vs W2 before. I am from an area without state taxes (TX), and have historically kept my formula as 1099=W2*1.5.

Otherwise, I would talk to a corporate accountant of some sort (CPA). Hope this provides some amount of spitballing for you.

reboog711 1

> The only issue I'm having is NO ONE will tell me what it's going to cost me.

I don't understand what costs you want to know about or who you're asking about them. Talk to your accountant.

  ghostoutlaw 1

Going from 1099 to W2 shifts the current tax burden AND some to my business. That's a cost. A cost which I need to know about.

I am looking for an accountant but cannot find one who charges under $1000 for a one hour consult.

reboog711 1

>Going from 1099 to W2 shifts the current tax burden AND some to my business. That's a cost. A cost which I need to know about.

I'm going to argue over semantics here.

There are different tax responsibilities for having employees vs having 1099 contractors. That I agree with.

I do not think there is a cost for switching someone from one to the other. Today with 1099 workers you have X responsibilities. Tomorrow with W2 workers you have Y responsibilities.

But, I don't think there are any costs associated with making that switch that wouldn't already be there that are different than onboarding a W2 employee.

UncleFishKiller 1

Good lord, not even my lawyer charges that much. You haven't looked hard enough. A good CPA is a partnership and they should not be charging you a fortune to discuss a long term partnership.

  ghostoutlaw 1

I think many quote me that rate because they don't want to deal with my industry, I've noticed it a lot.

UncleFishKiller 2

Now I'm curious...

  ghostoutlaw 1

Nail salon.

That or I just never hear back from them.

Apptubrutae 3

I’ve always just ballparked it. The other post of a 1.5x multiplier feels right to me. But there are some easy enough costs to capture:

1) Payroll tax should add 7.65%, I believe. The 1099 will go from paying 15.3% down to 7.65%, but you now get the extra 7.65%

2) Unemployment insurance. This is set by your state. You could check with them.

3) Worker’s comp. Depending on the jurisdiction, you should have had this anyway, but if not, check with your insurance broker. It’s based on the occupation.

4) Health insurance. Check with your health insurance provider if you offer it and you can easily get a price estimate.

Those seem like the big added costs to me. Beyond that it totally depends on what you provide as benefits. But the basic government added elements are payroll tax, unemployment, and worker’s comp.

  ghostoutlaw 1

So I pay 8% for payroll (or close enough, w/e).

UI which has variance, nbd. I assume it's lower than 8%, so NBD.

Workers comp, what insurance broker do I speak with for this?

Health insurance, not a factor at this time, so not an expense.

What about Social security and medicare? Or is that Payroll tax?

Apptubrutae 1

Yep, social security and Medicare are, combined, “payroll tax”.

As for worker’s comp, speak with your commercial broker. Do you have any sort of commercial liability policy, or property policy? Usually people get those through a broker. If you didn’t, then you can just Google for a commercial insurance broker and get info fairly easily. At least in my state, workers comp is highly state regulated and the state provides a list of approved brokers and sets rates. So it’s not that mysterious.

And yeah, UI shouldn’t be bad at all. Especially if you’ve had no claims. I believe mine is like 1.5% or so.

  ghostoutlaw 1

1.5x makes sense if health insurance is involved.

I already have commercial insurance, so most likely we're talking about maybe a 10-15% increase in total cost of payroll?

Apptubrutae 1

Really depends on what they do. Workers comp is set by occupation. I have office employees at 2%. Roofers are at like 50%. Varies by state I’m sure.

And yeah, 1.5x is definitely if you’re involve other benefits, not just added tax/insurance.