A W2 employee is a US worker on an employer's payroll, with income and payroll taxes withheld from each paycheck. The name comes from Form W-2, the annual wage statement. Agency temps and contractors are usually W2 employees of the staffing agency, not of the client.
Staffing and agenciestopic
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In one line
A US worker on an employer's payroll with taxes withheld. Agency temps are usually W2 employees of the agency.
For a W2 employee, the employer withholds federal income tax and the employee's share of Social Security and Medicare, pays the employer's share of those taxes, and pays federal and state unemployment taxes. W2 employees are covered by wage and hour laws such as minimum wage and, for nonexempt workers, overtime, and they are usually covered by workers' compensation.
In staffing, W2 is the standard way to pay temporary and contract workers. The agency hires the worker, runs payroll and bills the client an hourly rate that covers these costs. This differs from a 1099 arrangement, where the worker is paid as an independent business, and from corp to corp, where the agency pays the worker's own company.
Why it matters to recruiters
Recruiters regularly discuss pay structures with candidates and clients. Knowing what W2 means lets you explain why a W2 hourly rate and a 1099 rate for the same job are not directly comparable, why agency bill rates are higher than pay rates and why classification affects risk. It also helps you answer candidate questions about benefits and overtime clearly.
An example from a recruiting desk
An IT contractor is offered a role at $70 an hour W2 through an agency or $80 an hour on 1099 directly. The recruiter explains that on W2 the agency pays the employer share of payroll taxes and may offer benefits, while on 1099 the contractor pays both halves of those taxes and covers their own insurance. The candidate compares the true take home before deciding.
Tips that help
Always state whether a quoted rate is W2, 1099 or corp to corp.
Explain to candidates which benefits, if any, come with a W2 agency role.
Remind clients that agency W2 contractors are agency employees for payroll purposes.
Check overtime eligibility before quoting rates for hourly W2 roles.
Mistakes to avoid
Comparing W2 and 1099 hourly rates as if they were the same thing.
Assuming every W2 employee is exempt from overtime because they earn a high rate.
Frequently asked questions
Is a W2 contractor an employee?
Yes. A W2 contractor is an employee, usually of a staffing agency, assigned to work on a project for a client. The contract part describes the assignment's length, not the tax status. The agency withholds taxes and issues the Form W-2.
Do W2 contractors get benefits?
It depends on the agency and the law. Some agencies offer health insurance, paid time off or retirement plans, and some laws require certain benefits, such as paid sick leave in some states and cities. Ask the agency for its benefit summary.
Why do 1099 rates look higher than W2 rates?
Because a 1099 contractor pays both halves of Social Security and Medicare and covers their own insurance, unpaid time off and business costs. A higher 1099 rate may leave the same or less take home pay than a lower W2 rate.
