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Forcing a contractor to go W2

I have had a few questions like this: “I was wondering if there is a reason the vendor/broker/head hunter forces a contractor to go on W2?  As per many vendors, lots of big banks are insisting that contractors should be on vendors W2 and NOT have a sub-contracting relationship through an s-corp or 1099.”  To see the difference between W2 and 1099, check out Consultants: 1099 or W-2?.

So I asked my recruiter friend, and his reply:

I just landed a client a few months ago and per their MSA (Master Service Agreement), any candidate that I put on contract with them MUST be a W2’d employee of my staffing company.  It basically comes down to showing that the vendor (my staffing company) has control over the employee and that there aren’t a bunch of layers between the vendor and other sub-contractors.  By eliminating the potential for multiple sub-contracting layers it does two things: (1) reduces the margin between what the contractor “actually” costs and what that person is being billed to the client and (2) it shows that the vendor has control over the contractor (meaning that the vendor has a direct relationship with the candidate and the vendor isn’t getting the person from a sub of a sub of a sub).  I’m sure relative to the “banking” scenario listed in your question, there are also some federal regulations that have to be followed since dollars are involved in that industry.  It mostly comes down to ownership/accountability.  How well do you know a candidate if they come from a sub of a sub of a sub?  It is better for everyone involved there is a “direct” relationship between the vendor and their employee.

James Serra's Blog

James is a big data and data warehousing technology specialist at Microsoft. He is a thought leader in the use and application of Big Data technologies, including MPP solutions involving hybrid technologies of relational data, Hadoop, and private and public cloud. Previously he was an independent consultant working as a Data Warehouse/Business Intelligence architect and developer. He is a prior SQL Server MVP with over 30 years of IT experience. James is a popular blogger (JamesSerra.com) and speaker, having presented at dozens of PASS events including the PASS Business Analytics conference and the PASS Summit. He is the author of the book “Reporting with Microsoft SQL Server 2012”. He received a Bachelor of Science degree in Computer Engineering from the University of Nevada-Las Vegas.


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