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My friend has a W2 100% commission job. He looked for a W2 because too many 1099 jobs were scams.

However, this job has:

  • No benefits (health, dental, etc)
  • No base salary
  • Completely at-will - termination allowed for any reason by either party

Conversely he gets a company vehicle and company gas card. This is probably why it was set up a W2. However, these benefits contingent on sales numbers.

What is the point of a W2 employee who has no employee benefits or guaranteed pay?

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For the employee, the company withholds income tax, Social Security, and Medicare from wages paid. Those are also called benefits.

Also even for 100% commission, W2 employees must still get minimum wage. If the commissions would be less, the company needs to kick in the difference (thanks to Kathy for this extra information).

In general, the FLSA does not restrict the forms of “remuneration” that an employer may pay—which may include an hourly rate, salary, commission, piece rate, a combination thereof, or any other method—as long as the regular rate is equal to at least the applicable minimum wage.

Another benefit, which is very relevant in this case, is that if he doesn't get paid one week for the wage he's owed, he can go to the Department of Labor of his State and they'll make sure he gets paid.

An independent contractor, on the other hand, doesn't have that option. He would have to go to Small Claims Court, which costs ~$60 and which could take many months.

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  • Thank you, very informative. – workaddict Feb 10 at 14:27
  • The contractor also has a greater potential to write things off on their tax. And technically has to pay estimated tax every 3 months directly to the IRS (and state if needed) – Peter M Feb 10 at 14:34
  • Also even for 100% commission, W2 employees must still get minimum wage. If the commissions would be less, the company needs to kick in the difference. – Kathy Feb 10 at 18:18
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    @StephanBranczyk Seems to be. This is from the US DOL: "In general, the FLSA does not restrict the forms of “remuneration” that an employer may pay—which may include an hourly rate, salary, commission, piece rate, a combination thereof, or any other method—as long as the regular rate is equal to at least the applicable minimum wage". ecfr.gov/cgi-bin/… – Kathy Feb 10 at 19:25
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    @Kathy, Thanks. – Stephan Branczyk Feb 10 at 19:34
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The company pays half of Social Security and Medicare for W-2 employees. 1099 contractors have to pay both halves themselves in their estimated tax filings.

They also pay federal and state unemployment insurance premiums on their W-2 payroll. So you can collect on that if need be.

Finally, regulators sometimes crack down on companies who treat employees as contractors. To hire you as a contractor legitimately, you have to work autonomously rather than under close supervision.

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