1099 or W2 for a small company?

The downsides of working for a large company like Booz Allen, Deloitte, Peraton, etc. are known.

They can be bureaucratic and often make you do extra work outside of your billable hours.

Small companies generally have a different set of pros and cons.

In the government contracting world, you may be able to negotiate some very 1099-like terms with a small company.

• You might be able to negotiate an hourly rate or high salary that's close to what you'd make as a 1099
• You can probably avoid business development work if you don't want to do it
• You might be able to negotiate a healthy PTO allowance and other benefits

Working for a small company might be great!

But there is one major difference between working as a W2 at a small company working as a 1099: psychology.

As a W2 employee, it's easy to get psychologically comfortable and think the company will "take care" of you.

At a big company, this comfort comes from its size. If you're a Booz Allen contractor, there is likely another contract you can go to if your project fails or gets canceled for whatever reason. If worst comes to worst, you might even get severance!

At a small company though, the company doesn't have the scale or resources to really protect you. Sure the owner might be a nice guy or gal and do their best to make sure you're taken care of, but at the end of the day, there is not much they can do if your position gets terminated.

The problem is, it's one thing to know this intellectually and another to psychologically adopt it.

As a 1099, you learn to take responsibility for your own career and take appropriate risk management measures. You develop a healthy paranoia to things going wrong.

As a small company W2, you are exposed to the same risks as a 1099 but are too comfortable to keep networking, improving your skills, etc. If something happens, you're left unprepared and in a uncomfortable financial situation.

As a 1099, there is no hiding from yourself or the risks inherent in government contracting.

Whatever path you choose, make sure you understand the risks you're assuming and adopt an appropriate psychological posture.

Want the full playbook? Check out Going 1099.