Part 5: Choices

As with anything, 1099 contractors, C2C partners and ‘mini-corps’ should only be used when it makes sense. There are plenty of good reasons to have a dedicated engineering staff in-house, like developing sensitive or innovative/IP-related products. For more run-of-the-mill work, however, these alternatives can be more suitable, especially early on for startups that may struggle to find the right talent, or that are not entirely sure how to even evaluate technical talent.

To be honest, as far as the regulatory, tax and accounting side of things go, I don’t know if it’s more or less beneficial for startups to have 1099/C2C contractors. My assumption is it’s better and easier than onboarding a W2 employee, but in my experience a lot of companies shy away from it so maybe there are other reasons why that I’m unaware of, though this could also be because of the recent legislation on California basically outlawing these types of employee-employer relationships.

I do have a totally unsubstantiated idea why, but it may be a stretch. It's hard enough trying to find and hire the right employee, but to find the right C2C partners to work with opens up a whole new can of worms with an even wider array of possibilities and criteria.

For example, what kind of partner are you looking for? A one-stop shop? A specialist? Should you use a single provider or multiple? If multiple, how many, and how will you split the budget? What is the ideal agency size? What would you use them for? Who is going to manage them? You get the point.

Maybe that's not the issue, but it doesn't help. Instead, I'd say the best way is to take it on a team-by-team basis within your organization. Give each team the option to have a C2C budget in place of a single head, and as a team decide how to use that budget. The team, rather than organization, will be best suited to evaluate the most important needs, and the manager is likely to be fine with managing a partnership that the team selected rather than one that was chosen for them from on high.

Benefits to contractor

The focus of this series has been on why 1099/C2C can be a great alternative to W2 employees for early-stage startups. However, there are also benefits to the contractor depending on their lifestyle, goals and strengths. 

While many engineers will prefer W2 due to the perceived security and valuable benefits, especially health insurance and 401k matches, some are more suitable for contract work instead. In my case, I don’t have any children or a spouse, and although I do have a 401k it’s not really a major part of my retirement strategy. In addition, I am transitioning into a ‘digital nomad’, where I have location independence and the flexibility to move around, especially to different states (or even countries) with favorable tax and business law, ultimately keeping more money in my pocket while enabling a fun and exciting lifestyle.

My skillset is also broader than a typical software engineer. I tend to be more of the entrepreneurial and creative type of engineer, with significant skills in product management, marketing/branding, UX, technical management and more. With C2C, I could even leverage others to either handle more routine work like CSS styling or boilerplate wiring while I focus on the bigger problems and bigger picture.

I can also manage design projects by using services like 99designs where I can use the design budget for logo, website and app contests, as an alternative to hiring a full-time designer. This ultimately would make me happier as it allows me to flex and challenge all of my areas of strength, and delegate in order to spend more time doing what I’m good at it or managing the project as a whole.

Not all engineers are interested in the business side of things and may prefer to stick to, and specialize in, their area of expertise. Likewise, not all good engineers are strict engineers, and may have valuable experience or talents beyond the code they write, and can be most suited to balance the scales between business/customer needs and technical feasibility. Supporting those types can ultimately lead to better work satisfaction, productivity and loyalty, especially considering they understand it’s not the status quo and you are recognizing them as an individual rather than another cog in the wheel.

Lastly, engineers can get bored. If there isn’t a lot of internal mobility at an organization, engineers may fall into a boring routine that won’t challenge their skills or allow them to make a big impact, which will ultimately lead them to begin looking elsewhere. 

Conclusion

Hopefully I’ve done a good job convincing you to reconsider the ratio of full-time W2 employees to contractors at the various stages of your business. If I haven't, I may not be in business long!! Naturally I have a bias towards this sort of relationship considering it’s what I’m personally looking for, but I do feel I was objective enough in my assessment to make a solid case for considering these alternatives to a traditional W2 arrangement.