1099 contractors vs W-2 employees

A W-2 employee is on payroll: the business withholds income and payroll taxes, pays its share of employment taxes, and pays wages on a regular schedule regardless of when customers pay. A 1099 contractor is an independent business that invoices for its services and handles its own taxes; the hiring business reports payments on a Form 1099 and generally has more flexibility on payment timing.

Classification is not a choice of convenience. Federal and state tests look at control over the work, financial independence and the nature of the relationship, and misclassifying employees as contractors carries tax and legal consequences. For cash flow, the practical difference is that payroll is due on a fixed calendar while contractor invoices can sometimes be negotiated.