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How to Convert Contractor To Employee (2023 Guide)

Bryan Robinson

Are you tired of working with independent contractors and ready to bring them into the fold as official employees? You know, the kind of employees that get paid vacation time, health insurance, and maybe even a 401(k) plan? If so, you’re not alone. Many businesses are finding that converting contractors to employees is a smart move for a variety of reasons.

But let’s be real: converting contractors to employees can be a bit of a pain. It involves a lot of paperwork, legal jargon, and awkward conversations with your current contractors. That’s where we come in. 

In this guide, we’ll walk you through the process of converting contractors to employees. We’ll also include some helpful stats and references along the way, so you can make an informed decision about whether converting your contractors to employees is the right move for your business. 

Step 1: Know Your Stuff

Before diving into converting contractors to employees, it’s important to educate yourself on the legal differences between the two. Trust us, it’s not as thrilling as watching your favorite show on Netflix, but it’s necessary to avoid legal troubles down the road.

One of the key differences between contractors and employees is the level of control that the employer has over them. Contractors typically have more control over their work schedule and how they complete their tasks, while employees are subject to more direction and oversight. This has implications for how you pay them, provide benefits, and comply with labor laws and regulations.

For example, if you misclassify a worker as a contractor when they should be an employee, you could face legal consequences, such as fines and back pay. So, grab a cup of coffee and start reading up on the nuances of labor laws and regulations where contractor conversion is concerned.

In addition to legal compliance, understanding the differences between contractors and employees can also help you make informed decisions about who to convert and how to structure their employment contracts. For example, you may want to offer benefits and paid time off to employees, but not to contractors.

Overall, taking the time to educate yourself on the legal differences between contractors and employees is a crucial first step in converting contractors to employees. So, grab a comfy chair and dive into that dry reading material. It may not be as exciting as binge-watching your favorite show, but it could save you a lot of headaches in the long run.

Step 2: Choose Wisely

Now that you’ve got the legal jargon out of the way, it’s time to focus on the fun part: choosing which contractors to convert to employees. But don’t rush into this decision! When converting contractors to employees take some time to evaluate each contractor and identify the ones who have been absolute rockstars for your company. These are the ones who have been carrying your business on their backs and consistently delivering high-quality work.

On the other hand, there may be some contractors who you’re not sure what they do or how they contribute to your company’s success. Now is the time to evaluate their skills, experience, and work habits to determine if they’re a good fit for a full-time position.

Once you’ve identified your dream team of contractors, it’s time to have a little heart-to-heart with them. Let them know that you value their contributions to the company and that you’re considering converting them to full-time employees. Be transparent about your reasons for doing so and the benefits they can expect, such as regular paychecks, benefits, and job security.

This conversation can also be an opportunity for you to gauge their interest in becoming employees. Some contractors may prefer the flexibility and autonomy of their current status, while others may be eager for the stability and benefits that come with being an employee.

Overall, choosing which contractors to convert to employees is an important decision that requires careful consideration. Take the time to evaluate each contractor and have honest conversations with them to ensure that you’re making the right choices for your company and for their careers.

Step 3: The Talk

Now that you’ve identified your dream team of contractors and evaluated their fit for full-time positions, it’s time to have “the talk.” But don’t worry, we’re not talking about the birds and the bees here.

“The talk” is about explaining to your contractors why the conversion to employees is necessary, what benefits they can expect, and what the conversion process will involve. It’s important to be transparent and clear about these details to avoid any confusion or misunderstandings.

Start by explaining the reasons behind the conversion. Maybe you’re looking to streamline your operations or provide more job security for your employees. Whatever the reason, make sure your contractors understand the need for the change.

Next, talk about the benefits of conversion. Regular paychecks, benefits, and job security are just a few of the perks that come with being an employee. Make sure your contractors understand the value of these benefits and how they can improve their overall job satisfaction and quality of life.

Finally, explain the conversion process itself. This might involve signing a new employment contract, adjusting pay rates and schedules, and other administrative tasks. Be clear about the timeline and what’s expected of each party during the process.

And don’t forget to let your contractors know that this is a win-win situation. By becoming employees, they’ll be eligible for some sweet employee benefits that they wouldn’t have access to as contractors. So, encourage them to ask questions and voice any concerns they may have.

Overall, “the talk” is a crucial step in contractor conversion to employees. By being transparent and clear about the conversion process, benefits, and expectations, you’ll ensure a smooth transition for both your company and your contractors.

Step 4: Paperwork

Now that you’ve had “the talk” and your contractors are on board with the conversion, it’s time for the fun part: paperwork! Okay, maybe it’s not that fun, but it’s a necessary step in the conversion process.

First, you’ll need to collect all sorts of information from your soon-to-be employees. This includes tax and payroll information, as well as any other relevant personal or contact information. Ensure that you have all the essential forms and documents, including W-4 and I-9 forms, readily available. 

Once you have gathered all the necessary paperwork, present your employees with an employment agreement for them to sign. This agreement will detail their employment terms, including compensation, benefits, and other pertinent information. It’s like a prenup, but for work.

Make sure the agreement is clear and concise, and that your employees understand what they’re agreeing to. This is also a good time to answer any questions they may have about their new employment status.

Once all the paperwork is complete, congratulations! You’ve successfully converted your contractors to employees. But don’t forget that the conversion process doesn’t end here. It’s important to continue to communicate with your new employees and provide them with support as they transition into their new roles.

Overall, paperwork may not be the most exciting part of the conversion process, but it’s a necessary step to ensure that both you and your employees are protected and have a clear understanding of their new employment status.

Step 5: Time to Celebrate

Congratulations! You’ve successfully converted your contractors to employees. Now it’s time to celebrate with a round of office karaoke. Just kidding, but you should definitely take a moment to acknowledge your hard work and the achievement you’ve made.

But before you bust out the mic, there are a few more important steps to take. Now that you have employees, you need to set up payroll, benefits, and other employment details. This includes setting up direct deposit for their paychecks, enrolling them in health insurance and retirement plans, and ensuring that they are properly classified as employees for tax purposes.

Make sure you have all the necessary information from your employees to set up these accounts, such as their social security numbers and banking information. And if you’re not sure where to start, don’t worry. There are plenty of resources and software options available to help you manage payroll and benefits.

It’s also important to provide your new employees with a copy of your company’s employee handbook. This guide sets out your company’s policies and expectations, helping your employees to understand what is required of them. You don’t want them to be surprised when they find out that wearing flip flops to work is a big no-no.

Overall, converting contractors to employees can be a daunting process, but with careful planning and execution, it can lead to a more stable and successful business. And who knows, maybe after all the hard work is done, you can finally break out that office karaoke machine.


It’s always helpful to back up your decisions with data, so here are some stats and references to keep in mind. In 2020, a survey by Upwork found that 59 million Americans engaged in some form of freelancing. This shows that the gig economy is on the rise, and more workers are opting for the flexibility that comes with being a contractor. 

However, it’s important to note that independent contractors are also more likely to experience wage theft than traditional employees, according to a study by the Economic Policy Institute. Fair and equal treatment of all workers, regardless of their employment status, is emphasized here.

Final Words

While converting contractors to employees or should we say convert 1099 to w2 may seem like a daunting task, it’s one that can bring numerous benefits to your company. By following these steps and taking the time to understand the legal differences between contractors and employees, you can create a more stable and satisfied workforce. 

Remember to choose your contractors wisely, have “the talk,” handle the paperwork, and set up your new employees for success. And don’t forget to celebrate your hard work and success along the way. Who knows, maybe you’ll even get a raise for being such a great HR person!

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