People who are currently working or retired will agree with the statement that receiving the first salary is one of the most memorable moments of their life. Earning money gives you wings of freedom and a sense of responsibility. This is especially true if you are an international student in the United States. Students coming from other countries are also allowed to work part time in this country and this helps them to sustain themselves by paying for their boarding and lodging. This in turn reduces the financial burden on their families who have most probably spent a good amount on their college or university fees. Students in the USA put in their best effort to find a full-time or a part-time job. But you must gain the necessary knowledge before accepting any employment opportunity, especially if you are an international student pursuing education in the USA. You need to compare various modes of working to taking the right decision. In simple words, you should understand what “W2 vs C2C” is.
If you have already heard of these terms, your mind might be baffled by a lack of clear information. Don’t worry as this blog post will enlighten you on W2 and C2C. Continue reading to find answers to all your queries. We will start with understanding what W2 and C2C actually are and who falls in which category. Once you have understood this you can go ahead and apply for a job under the category to which you belong.
What are W2 and C2C?
W2 and C2C are working options available for prospective employees who come into contact with any organization or employer through staffing or recruitment agencies. These prospective employees are called ‘candidates’ or ‘consultants’. Here comes an important question – “What is the basis of this categorization, i.e., W2 and C2C?” Well, whether you will fall under the W2 category or C2C category depends on the relationship between the staffing agency and employer and many other factors. We will look at these factors in detail in this blog post, so that if you are a student in the United States or planning to become one then you can make sure that you are on the right side of the employment laws of this country.
What is W2?
W2, which stands for the wage and tax statement, is a tax form given by the employers to employees in the month of January every year. This document contains the details related to income earned and taxes payable by an employee. Now, to be classified under this category, you must satisfy certain conditions.
Let’s see what constitutes a W2 Employee/Contractor.
Many people learning about W2 vs C2C get intrigued by the difference between a W2 employee and a W2 contractor. Well, these terms are used interchangeably as the line between ‘employee’ and ‘contractor’ becomes blurred when it comes to W2.
But, ‘W2 employee’ sounds more appropriate while discussing this working arrangement. The term ‘W2 employee’ refers to the person who is referred to the organization through a staffing or employment agency. The following example will clarify it better.
‘John’ takes the help of the ‘ABC’ recruitment agency for landing a job in ‘XYZ’ company. Now, John performs duties prescribed by the organization, i.e., end client of a staffing agency, which is XYZ Company in this case, within working hours and rules of the organization. Therefore, he is treated like a full-time employee in certain aspects, such as taxation and payroll benefits.
The taxes of an employee are deducted from his salary and paid to the concerned authorities on his behalf. However, the benefits provided to him vary from company to company. While a company ‘A’ might offer him a number of benefits, like health insurance, sick leaves, paid vacation and a retirement plan, a company ‘B’ might choose to offer only a few benefits. As a candidate you should clarify these benefits with your employment agency before you even apply for the job. And make sure that you take up a job which gives you the benefits that you require.
An important point to consider here is that John will be on the payroll of ABC recruitment agency as he is considered as their employee. He will be called as “W2 of ABC recruitment agency”. For ‘XYZ’ company, John is a contractor, with whom a contract will be signed. So, even if John switches from ‘XYZ’ to ‘PQR’ company on the recommendation of ‘ABC’ recruitment agency, he will still officially remain as an employee of ‘ABC’ agency.
Another advantage of being a W2 employee is that John can work for multiple companies or employers. Moreover, he does not need to calculate taxes or keep records of accounting transactions. He will receive a W2 tax form with details of his salary, tax withholdings, and so on from the staffing agency. He can use this tax form for filing his taxes. Generally, the contract for this type of employment is for a fixed period of time.
Hence, the employer cannot terminate you before the end date of the contract, except in cases of gross misconduct. The recruitment or placement agency gets paid by their end client for their services, which include finding new candidates, scheduling interviews, etc.
We hope ‘W2 vs C2C’ is not seeming as difficult to you as it was at the beginning of this blog post. Moving further, let’s delve into C2C.
What is C2C?
C2C, which stands for Corp-to-Corp or Corporation-to-Corporation is an agreement that takes place between two business entities. Individuals searching for a suitable opportunity to work and earn can choose this route. You should have the status of an ‘S-corp’ or an ‘LLC’ to enter into a C2C agreement. “But is it that simple?”
To understand C2C more clearly, read the paragraphs below.
To set up an ‘S-corp’ or an ‘LLC’, you need to complete various time-consuming and expensive processes. Next, you need to find an organization that not only requires the skills and talent possessed by you but also agrees to pay fees expected by you. Being the sole authority of your business, you can exercise greater control over operations and working conditions.
C2C working arrangement is preferred by companies that recruit people for short-term contracts. So, you can switch companies or employers for learning new skills and acquiring experience. But, at any given time, you cannot work for more than one employer. Companies that wish to avoid the burden associated with hiring and retaining employees go for C2C.
You should buy a liability insurance plan for covering the claims made against your business for compensation of damages or injuries. Taxes will not be deducted from the salary or fees paid to you. But wait before you jump with excitement as no deduction of taxes does not mean that taxes will not be levied on your income. You will be responsible for calculating and filing your taxes on a quarterly basis.
You can ask an accountant to assist you, but it would lead to an additional expense. The tax rate imposed on consultants in this arrangement is higher than that imposed on W2 employees or 1099 independent contractors. However, as they say, ‘every cloud has a silver lining’, you can charge higher remuneration from the company for fulfilling your tax obligations as well as reimbursing the expenses incurred by you.
You need to submit an invoice to the company for receiving the payment of work completed by you. The payment is released after 30-60 days. At times, it can take even more than 60 days. As you cannot be considered as an employee of the organization for which you are working, you will not be able to enjoy healthcare, retirement and other benefits. But, it gives you a chance to design your own benefits package and retirement plan.
If you are a student visa-holder in the USA, the debate of C2C vs W2 might have become more complicated after reading the above paragraphs. To get an answer to your question “Where do I fit in?”, continue reading…
You can become a part of this arrangement by signing an agreement with a placement agency. Your resume will be shared with the clients of the placement agency. On getting selected by one of the companies, you can start working. But, officially, you will be on the payroll of the staffing agency. You will be considered and treated as an employee of the recruitment agency.
Another scenario that is categorized as ‘C2C’ is where two recruitment firms join hands to meet the needs of a company. Let’s suppose ‘ABC’ placement agency has ‘XYZ’ company as a client. Now, ‘XYZ’ company needs a person for carrying out certain activities. But ‘ABC’ recruiters can’t find a suitable match in their database. So, they approach ‘PQR’ staffing agency that has a candidate who can best fit the position.
The candidate, on clearing the interview, will begin to work for the ‘XYZ’ company. Unlike, W2 employees, C2C consultants don’t have job security or chances of getting a contract IT job converted to full-time employment. In fact, if you have joined an organization through a recruiter, the spoiling of relations between the two can also affect your contract. So, you might find yourself unemployed for no fault of yours.
W2 vs C2C – Differences You Must Know
We are sure that you must have gained a better understanding of W2 and C2C (Corp-to-Corp) forms of employment by now. Though you can read between the lines to know the differences between W2 and C2C, we have mentioned them distinctly here.
| Basis | W2 | C2C |
| Term | A W2 contract is relatively for a longer duration. So, you can gain expertise in the field of your choice. | A C2C contract is for a quite short period of time. So, you can explore new fields frequently. |
| Formalities | You don’t need to complete any process for registering a business or calculating taxes. | You need to register your business as an ‘S-corp’ or an ‘LLC’ entity. You have to take care of bookkeeping to calculate profits/losses and taxes. |
| Flexibility | A W2 employee can work for more than one employer. | A C2C consultant cannot work for more than one employer. |
| Expense reimbursement | W2 employees cannot claim reimbursement for some of their expenses. | C2C consultants can claim reimbursement of their expenses as they are operating their own business. |
| Paid leaves and vacation | The benefits, such as paid sick leave and vacation are provided to a W2 employee. | A C2C consultant is not given paid sick leave and vacation. |
| Management | A W2 employment relationship is easy to manage. | A C2C relationship is difficult to manage. |
W2 Contract vs Corp to Corp – Which is Better for You?
While both W2 and C2C have their own set of pros and cons, no one option can be deemed best in every situation. A particular disadvantage linked to the W2 working arrangement might work in favor of a certain candidate. Therefore, you must weigh several factors out to decide which option is the best for you.
We have provided some tips for making your task easy. Let’s have a look at them:
- If you accept a W2 employment offer, you will be entitled to various benefits. You should read the contract properly to know the benefits.
- If you choose to set up an ‘S-corp’ or an ‘LLC’, you must learn how to register business and file taxes as per the rules applicable in your state.
- In case of legal claims, a C2C consultant can get a little relief, as their personal assets will be considered as separate from his business assets.
Conclusion
Congrats! You made it to the conclusion. We admire your interest level and patience. You need to show the same qualities while hunting for your job. In the end, we will just like to say that whenever you visit any staffing agency or organization, engage in an open dialogue to make sure you make the right decision. Don’t let any of your confusion regarding W2 vs C2C come in the way of your career.