Hello all.

I am starting a small start-up selling, let's say, Widgets. Instead of opening a retail store, I want to have salespeople promote/sale my product on street corners in strategic areas. They would either come to the office to pick the product up or I will meet them at their designated location to drop it off. They will promote the product about 5 hours per day. I'm not sure what the retention rate will be, but is it better to 1099 them or W2? I want to attract them with a high payrate per hour. I'm not sure which way is best. Perhaps they may not stick around long enough to be an employee. That's fine because I don't expect them to make it permanent. But, I do expect to have a constant influx of folks do to the attractive hourly pay rate. Does paying them hourly make them automatically W2?

Thanks

I hope you get proper peddler's licenses if you are going to be selling products on streetcorners. Check with your city for the proper licenses needed or your salespeople could land in jail. Also the 1099 would be better for them and for you. This way you don't have to do the matching employer funds. This would be beneficial to you if you don't think the employees will stick around very long.

Read about W2 vs 1099-Misc
Your U.S. Tax Return: W2 vs 1099-Misc: Employee vs Independent Contractor. (http://taxipay.blogspot.com/2008/03/w2-or-1099-employee-or-independent.html)

Without a doubt, using Form 1099-MISC is the best route for you because you do NOT have to file the quaterly employment tax form (Form 941) nor the annual Unemployment Tax Return nor have to worry about workmen's compensation.

Once properly educated, the vendors would benefit as well, as they can deduct their working expenses MUCH EASIER on a Schedule C than on a Form 2106/Schedule A.